


63d Congress 1 
1st Session J 



SENATE 



j Document 
1 No. 151 



REVISION OF THE PATENT LAWS 



THE OLDFIELD BILL 

BEING A REPORT AND PAPERS 

RELATING TO HOUSE BILL 23417, AS REVISED AUGUST 8, 1912, 

BY A COMMITTEE OF THE PATENT LAW ASSOCIATION 

OF CHICAGO, AND RESOLUTIONS OF THE 

ASSOCIATION 




PRESENTED BY MR. BRANDEGEE 
August 4, 1913. — Ordered to be printed 



WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1913 






CONTENTS. 



Page. 

Report of the committee 5 

Resolutions of the association 14 

Brief analysis of the bill (paper by Mr. Hill) 16 

The proposed amendments as to the term of patents (paper by Mr. 

Gillson) 26 

The compulsory license feature of the bill (paper by Mr. Barnett) 31 

Provisions of the bill restricting the resale of patented articles and reme- 
dies for violation (paper by Mr. Lane) 37 

The antitrust provisions of the bill (paper by Mr. Wiles) 42 

2 



D. OF D. 
AUG 14 1913 



Ox 









Patent Law Association of Chicago, 

February 15, 1913, 
To our memhers and those interested in the patent laws: 

The accompanying report and papers upon the Oldfield bill (H. E. 
23417 and Report No. 1161) were prepared by a committee appointed 
by the association and were read and discussed at meetings called for 
the purpose. 

The committee's report was received by the association at its annual 
meeting January 24, 1913, at which time, after a full discussion, the 
resolutions appearing on page 19 were unanimously adopted. 

George P. Barton, President, 
Charles B. Gillson, Secretary, 

Monadnock Building, Chicago. 

3 



REPORT OF THE COMMITTEE APPOINTED TO CONSIDER THE 
PROVISIONS OF HOUSE BILL NO. 23417 AS REVISED AUGUST 
8, 1912, KNOWN AS THE OLDFIELD BILL. 



To THE Patent Law Association or Chicago : 

Your committee beg leave to report that they have given careful 
consideration to the provisions of the above bill, to the report of Mr. 
Oldfield thereon, and to a digest of the hearings before the House 
Committee on Patents on certain of the subjects covered by the bill. 

Your committee appends hereto as a part of its report copies of 
five papers dealing with the bill as a whole and with the four sub- 
stantive matters contained therein in detail, which were presented to 
the association at a series of informal meetings. These papers, 
which have been printed and distributed to the members of the asso- 
ciation, are as follows: 

By Mr. Hill, " A brief analysis of the bill." 

By Mr. Gillson. " The proposed amendments as to the term of 
patents." 

By Mr. Barnett, " The compulsory license feature." 

By Mr. Lane. " Resale restrictions and remedies for violation." 

By Mr. Wiles, " The antitrust provisions." 

For a detailed discussion of the bill, we refer to these papers. 
This report, after a brief reference to the several subjects matter of 
the bill, will deal only with the broader aspects of the question. 

THE FOUR substantive FEATURES OF THE BILL. 

I. Patent term. 

The Oldfield bill amends the present statute regarding the term for 
which patents are to be granted so as to subtract from the 17-year 
period now fixed by law all time in excess of two years which the 
applicant occupies in the prosecution of his application. This amend- 
ment, if passed in its present form, would have no effect upon the 
life of any patent granted within two years from the date of the 
original application, but it would shorten the life of any patent 
granted more than two years after the date of the application to the 
extent of the time in excess of two years consumed % the applicant, 
exclusive of the period consumed by the office in its actions and by 
interferences or appeals therein. lib would seem from the language 
of the proposed amendment that it would take from the applicant 
whatever time was necessary in perfecting and taking his appeal 
from the decision in the office, but would not subtract from the term 
the time consumed by the office in deciding upon such appeal. 

5 



6 KEVISION OF THE PATENT LAWS. 

II. Compulsory licenses. 

The Oldfield bill provides for compulsory licenses, the avowed 
object being to prevent the shelving of competitive patents. The 
theory of the amendment seems to be that an inventor may hold more 
than one patent relating to the same subject matter so long as he 
does not contract or agree with others to suppress one or more of his 
patents. The report justiifies this by an argument that the inventor 
is presumably meritorious and impecunious, and must enlist outside 
aid to bring his inventions before the public, but assumes that the 
assignee of a plurality of patents relating to the same industry is 
attempting to create a monopoly of monopolies and that such owner- 
ship is without justification. Of course, the bill ignores a large class 
of cases where the inventor himself takes out numerous patents relat- 
ing to the same industry and manufactures under some, but not all, 
of them. It does not operate against the individual patentee unless 
and until it has been shown he has agreed with some one else to sup- 
press one of his patented inventions or that he is suppressing a com- 
petitive patent acquired by assignment from another. 

The bill provides as the method of affecting compulsory licenses 
a suit in equity and imposes upon the court the duty of fixing the 
terms of the license including the matter of license fee. An appeal 
lies from the decree of the district court to the court of appeals. 

The period of suppression is calculated from the date of the origi- 
nal application, and is fixed at three years. In passing we may call 
attention to the fact that the application in many instances might be 
pending for the whole or the greater portion of that time, with the 
result that compulsory license might be demanded under a patent 
immediately after its issuance. The compulsory license feature does 
not apply to patents granted prior to the passsage of the act. 

III. Suits against furchasers^ lessees., or licensees of patented articles. 

The Oldfield bill takes away from the owner of a patent the right 
to commence an action for infringement against any licensee, lessee, 
or purchaser from or under such owner on account of a breach of the 
contract of sale or of the lease or license. The effect of this amend- 
ment would seem to compel the owner of a patent or of any interest 
in a patent to resort to an action upon his contract, whether expressed 
or implied, and takes away from him the remedy by suit for in- 
fringement, and compels resort to the State courts, unless there be 
diversity of citizenship and the necessary jurisdictional amount is 
involved. 

IV. Antitrust provisions and price restrictions. 

The Oldfield bill contains an elaborate series of provisions, the 
declared purpose of which is to remove the exemption as to patented 
articles from the Sherman law. The bill not only subjects patented 
articles to all of the limitations and prohibitions of the Sherman 
law, but it imposes restrictions upon dealing in patent property 
which are not imposed by the Sherman law upon un})atented articles. 



REVISION OF THE PATENT LAWS. 7 

PROPOSITIONS ON WHICH THE OLDFIEM) BILL, IS BASED. 

The bill and the report are predicated upon the following propo- 
sitions. We quote from the latter : 

(1) There is widespread dissatisfaction with the operation of our patent 
laws; (2) the rapid growth of trusts and combinations whose business rests 
largely in patents; (3) there is an insistent demand for a revision of the 
existing laws affecting patents. 

The report states that at the 27 public hearings the only subjects 
considered were those covered by sections IT and 32 of the original 
bill corresponding to sections 1 and 2 of the substitute bill. These 
subjects are the patent term, compulsory license, and price restric- 
tions. 

The report states that the investigation by the committee disclosed 
that the existing dissatisfaction with our patent system is due to a 
variety of causes, but that two causes entirely distinctive in char- 
acter are principally operative: (1) The abuses of the rights granted 
by patents, and (2) the defects of our present system or administer- 
ing the patent law in the Patent Office and in the courts, and the 
report states that — 

No complete remedy for existing evils is possible without removing by 
adequate legislation these two great causes of dissatisfaction. 

After stating that the investigation before the committee was con- 
fined to the abuses incident to the use of patents, and specifically to 
the fixing of resale prices, the limitation of the right to use a patented 
article in connection with an unpatented article supplied by the 
patentee and the suppression of patented inventions, the report de- 
clares : 

As a remedy for these evils it was proposed to limit the absolute right now 
vested in the owners of patents under which they determine to what extent and 
in what manner the use of the patent, or patented article, shall be permitted. 
With this in view, it was proposed to take away specifically the right recog- 
nized by the lower Federal courts to fix under the patent law prices at which 
articles shall be sold at retail, and also to take away the right recently con- 
firmed in the mimeograph case to prohibit patented machines from being used 
otherwise than in connection with unpatented materials furnished by the vendor 
or licensor. 

The purpose of the bill to entirely change the character and extent 
of the property rights of a patentee and to convert his ownership 
into a limited privilege upon condition instead of a monopoly is thus 
plainly declared. 

There were no hearings before the Oldfield committee upon the 
antitrust sections of the bill, but these provisions in substance were 
copied from the Lenroot bill, which had been considered before the 
House Judiciary Committee and failed of approval. After the hear- 
ings before the House Committee on Patents these antitrust pro- 
visions were incorporated in the Oldfield revision and reported favor- 
ably by a bare majority of the committee, without any public hearing 
thereon. 

That the Oldfield bill is mainly an antitrust bill is admitted by 
the author in his report, where he says : 

The bill herewith submitted consists, therefore, largely of provisions making 
specific application of the Sherman Antitrust Act to businesses involving pat- 
ents and tlie means for their effective administration by the courts and other- 
wise. 



8 KEVISION OF THE PATENT LAWS. 

The Oldfield bill does not profess to deal with the defects due to 
the administration of the patent sj^stem in the courts, and it does not 
deal with the defects in the administration of the Patent Office, 
except as to the dela3^s of the applicant in prosecuting his application, 
which it seeks to correct by shortening the term of the patent where 
the delay is excessive. 

committee's view of the alleged defects of the patent system. 

Your committee has given careful consideration to the statements 
and arguments of the report, and has considered the evidence ad- 
duced before the House Committee on Patents at the hearings. As 
^ 1 a result, we find no sufficient basis for the statements that there is a 
*■ " widespread dissatisfaction with the operation of our patent laws " ; 

that " the business of trusts and combinations rests largely on pat- 
ents " ; and that " there is an insistent demand for a revision of the 
existing laws affecting patents." On the contrary, your committee is 
of the belief, founded upon the experience of its individual members, 
' and upon all the information obtainable, that the operation of our 
patent laws has given in the past, is now giving, and will continue to 
give, general satisfaction; that the business of the so-called trusts, 
with few exceptions, is not founded or dependent on patents; and 
that there is no intelligent demand, insistent or otherwise, for a gen- 
eral revision of the patent laws. 

Even if it were true, as declared by Mr. Oldfield, that a revision 
of the patent law is demanded, the bill does not meet that demand, 
for it is in no sense a revision of the patent laws; it does not meet 
the stated or recognized defects in their administration, and your 
committee believes that the alleged evils which it attempts to state 
and remedy are harmless compared with those which would follow 
from the passage of this bill. 

When the subject is fully understood your committee believes that 
it will be found that the criticisms of the patent system are directed : 

First. Against the procedure in the Patent Office which involves or 
permits delays, entails expense, and results in the grant of invalid 
or inadequate patents. 

Second. Against the procedure in the courts which likewise in- 
volves or permits delays, entails great expense, and produces con- 
flicting decisions. 

Responsibilty for the first of these defects rests chiefly with Con- 
gress, which has refused the oft-repeated requests of the office and 
demands of the patent lawyers for the necessary funds to bring the 
work of the Patent Office up to the highest possible standard of 
efficiency. 

Your committee believes that the ground of complaint against the 
administration of the patent system within the Patent Office can 
be removed by a few simple amendments to the present law, and by 
increasing the funds and facilities of the office. 

The complaint as to the administration of the patent law in the 
courts is directed chiefly against the expense and uncertainty of result. 
That patent litigation is expensive, and that the result is uncertain, 
and the decisions conflicting must be admitted. We submit, however, 
that patent litigation is no more expensive than other litigation 
involving questions of equal importance and monetary value. 



REVISION OF THE PATENT LAWS. 9 

Uncertainty of result and nonuniformty of decision are attrib- 
utable to a variety of causes. No two patent cases are or can be 
alike in their subject matter or attendant facts. Therefore, it is 
not to be expected that an3^ fixed rules of decision will ever be laid 
down. Insufficient consideration by the trial courts is due chiefly 
to lack of time in those circuits where the bulk of patent cases are 
tried. Erroneous decisions are due frequently to lack of experience 
by the judge or from an inaptitude or disinclination to try patent 
cases. There are some defects in the present modes of procedure, 
and no doubt abuses in the taking of testimony. Your committee 
believes that the remedy for these defects has been in the hands of 
the courts, but has not been exercised under the present equity rules, 
and that until the effect of the new equity rules upon the practice 
shall have been ascertained no amendment of the statutes relating 
to procedure is advisable. There is a pressing need for additional 
district judges in some of the circuits, and the operation of the new 
rules will make this need imperative. 

THE ALLEGED EVILS OF THE PATENT SYSTEM AND SUGGESTIONS FOR THEIR 

REMOVAL. 

We will noAv briefly consider the specific matters covered by the 
Oldfield bill and suggest remedy for such of them as appear to need 
correction. 

First. As to delay by applicants in the prosecution of applications. 

Your committee submits that the e^ils of this practice are greatly 
overstated by Mr. Oldfield. Our system of examination has always 
included a fixed period within which the applicant for a patent must 
respond to an action by the office. Undoubtedly this, or some equiva- 
lent provision, is necessary. The fixed period, however, gives the 
applicant the right, and puts it within his power to unduly delay the 
prosecution of his application. But this right is seldom exercised to 
the hurt of the public, and is often essential to the securing of the 
rights of the inventor. The Oldfield bill leaves the fixed period un- 
touched, but seeks to penalize undue delay by subtracting from the 
term of the patent. The principal objection to this plan is the un- 
certainty and inconvenience arising from the necessary calculations 
as to the time to be deducted and the granting of patents for unequal 
terms and for fractions of a year. 

The practice in some countries is to require the Patent Office to fix 
in each case the time within which amendment must be made, or 
other action taken by the applicant. We believe that a more careful 
investigation should be made before changing the present system, and 
that consideration should be given to the question whether the evils 
found to exist could not be remedied by conferring upon the Com- 
missioner of Patents the poAver and imposing the duty of dealing 
with pernicious delays and frivolous and unresponsive amendments, 
such as are given to the courts in dealing with dilatory pleas and 
vexatious delays. 

The delays in the Patent Office are not all on the part of the 
applicant. At the present time appeals to the board are not reached 
for six months, and the decisions are usually not rendered within 
three months from the date of hearing. Many of the examining divi- 
sions are behind in their work, and the actions in many cases are 



10 KE VISION OF THE PATENT LAWS. 

unsatisfactory. All this is due to lack of men and facilities, and the 
inventor is the principal sufferer. 

Second. The compulsory license provision. 

As to the compulsory license feature of the bill, we do not find 
from the evidence adduced before the House committee, nor from 
any other source of information, sufficient justification for a resort 
to this scheme, which is wholly antagonistic to the basic principles 
of the American patent system. 

The Oldfield bill, in providing for compulsory licenses, seeks to 
introduce the idea of a working requirement ; but does it by indirec- 
tion, possibly because of the apprehension that a direct require- 
ment would be unconstitutional. 

The declared purpose of the compulsory license section is to pre- 
vent the restriction of competition by the suppression of inventions. 
However laudable this purpose may be, its accomplishment by the 
machinery of the Oldfield bill would possibly defeat the very purpose 
of the constitutional provision (art. 1, sec. 8), in that it would dis- 
courage instead of " promote the progress of science and the useful 
arts." 

The provision discriminates between classes, as the compulsory 
license clause is effective only against assignees of patents and those 
original inventors who enter into an agreement or obligation to sup- 
press an invention. 

No assignee, whether the owner of one or a plurality of patents, 
will be permitted to refrain from practicing an invention which 
would compete with anything else he is manufacturing without be- 
coming subject to the compulsory license section. Any original 
inventor might, however, take out any number of patents and sup- 
press any or all of them while continuing to manufacture articles 
with which they would compete, and yet not be amenable to the 
compulsory license. 

Most of the useful inventions are made by engineers and high- 
grade mechanics, who are employed because of their inventive abil- 
ity, who receive high salaries, and secure promotions or an interest 
in the business in consideration of the improvements they make in 
connection with the business in which they are employed. Large 
sums of money, sometimes fabulous amounts, are spent in developing 
these improvements, and the patents therefor are assigned in whole 
or in part to the employer, who furnishes the capital. In the course 
of the development alternative forms of construction or processes of 
manufacture are produced. Sometimes these developments are in 
the nature of improvements on but are subordinate to a basic patent 
owned by the employer. 

It would almost certainly follow that a compulsory license law 
would discourage effort to develop the best method by the devising 
and trying out of various methods, apparatuses, or machines for 
accomplishing a given result. The law would probably operate to 
suppress many valuable inventions, possibly more than it would 
liberate by compulsory license. 

It may result that a manufacturer who develops a business will be 
unwise to permit any employee to take out patents for his or its 
benefit for any improvements which he can not immediately practice. 
He may perhaps own a controlling patent in his line of manufac- 
ture. From time to time improvements may be made in his factory 



REVISION OF THE PATENT LAWS. 11 

by his employees. Some of these improvements being alternative 
constructions, he will be disposed to give the preference to some and 
withhold others. Within three years after the date of application 
for a patent on the improvement not put into practice a competitor 
may demand and secure a license under this patent. When such a 
license is decreed under an alternative but subordinate patent, the 
question arises, whether the licensee obtains a right to use the specific 
structure covered by the license, notwithstanding that it is covered 
by the broad claims of a patent owned by the enforced licensor and 
under which he is operating. Will the principle of easement give to 
the licensee the right of way across the claims of the controlling 
patent, and the manufacturer, therefore, find himself without other 
protection than the limited claims for the specific form of the device 
which he is manufacturing? If so, his dominating claims become a 
dead letter, not only as against the particular licensee but as against 
all other manufacturers who may demand licenses under the patents 
which have been withheld. 

Whatever may be urged in favor of the compulsory license system 
and however laudable the purpose of its proponents, your committee 
submits : 

That the principle of compulsory license is antagonistic to the 
theory of our patent system; 

That it is doubtful whether its application would not suppress 
more inventions than it would liberate ; 

That it raises the question whether a person procuring a compul- 
sory license would not have the right to use inventions covered by 
broader patents owned by the person from whom the compulsory \ 
license was demanded ; i 

That if it did not have this effect the compulsory license would be i 
ineffective in many instances; i 

That the bill is objectionable in that it makes the grant of a com- i 
pulsory license mandatory upon a showing of a certain state of facts, / 
leaving the court with no discretion, even though the grant of a 
license in a particular case might be inequitable if not unconscion- 
able ; 

That the bill discriminates between owners of patents, exempting 
such owners if they are inventors and have not contracted to sup- 
press their inventions while making all other owners subject to com- 
pulsory licenses ; 

That the bill as drawn would not prevent practical suppression 
wherever the owner of a patent was able to work it to any extent, 
thereby making it possible for rich manufacturers or owners to sup- 
press without liability; and 

That the bill is uncertain in many of its provisions and would 
undoubtedly give rise to extensive and prolonged litigation. 

The idea of compulsory license and price restriction is borrowed 
from the English law, and the Oldfield report assumes, if it does not 
state, the superiority of the British system. On the other hand, 
many intelligent Englishmen prefer our system. But no intelligent 
understanding of the two systems can be had without considering 
the principles on which they are founded. 

The theory of the patent system of the United States is that pat- 
ents are to be granted only to the original and first inventors ; that the 
law conveys an absolute monopoly (by the provisions for excluding 






12 KEVISION OF THE PATENT LAWS. 

everyone but the owner of a patent) during which the patentee shall 
onjoy that which he has created ; and that the consideration for this 
limited grant is the encouragement thereby afforded to the making 
of inventions and the benefit which the public derives from the right 
to use the thing invented without charge after the expiration of the 
period of monopoly. The Oldfield bill, in its provision for compul- 
sory license, we submit, subverts the foundation principle of our 
patent law, and unless we are prepared to change the entire policy 
of the patent system we can not give our indorsement to its pro- 
visions. 

The basic idea of the British patent system is to encourage the in- 
troduction within the realm and continued supply thereafter of new 
manufactures. Following this thought patents were granted to any- 
one, whether inventors or importers, who introduced such new arti- 
I cle, and it was consonant with that idea to provide for compulsory 
licenses and in other ways to insure the supply of the article from 
the very beginning of the grant. In short, the British idea was to 
encourage the introduction of new manufactures or articles of com- 
merce ; the basic idea of our constitutional provision Avas to promote 
the progress of science and the useful arts by encouraging the in- 
vention of things not theretofore existing and as a part of the com- 
pact an absolute monopoly was promised to such inventors for a lim- 
ited period, to be fixed by the Congress. We submit that the English 
system affords no just criterion for the compulsory-license feature 
of the Oldfield bill. 

Third. Kesale-price restrictions and limitation of right to sue for 
infringement. 

The considerations above stated apply to the question of resale- 
price restriction. If a patentee has a monopoly in the making, using, 
and selling of an article, and has the right to suppress the invention 
wholly and to exclude others wholty, it follows that he has the right 
to suppress it in part or to admit others on such terms and condi- 
tions as he may fix. Of course it may be argued that under the con- 
stitutional provision it is still within the province of Congress to fix 
conditions and limitations affecting the exclusive right which the 
Constitution mentions, but the reasoning of all of the decisions up 
to the present time points to the conclusion that when the Constitution 
used the word " exclusive '' it meant just that, and that the constitu- 
tional provision could not be avoided by fixing conditions and limita- 
tions upon the exclusive right which impaired or lessened its scope. 
This, of course, does not mean that patent property like other prop- 
erty is not subject to other provisions of the Constitution and to the 
laws of the land, as for example to the police power of the States and 
the laws relating to the conservation of the public health and the 
public morals. But the provisions of the Oldfield bill, at their face 
value, take away from the owners of patented property the right of 
contract which is enjoyed by owners of unpatented property. We 
can not see any justification for prohibiting the patentee from fixing 
in the terms of his contract as one of the conditions of a license the 
price at which the article shall be resold, if that be necessary to the 
preservation of his monopoly and if the restriction be imposed as a 
condition of the license. 

Whether the owner of a patent should have the right to restrict 
the selling price of a patented article after he has parted with its 



REVISIOI^ OF THE PATEXT LAWS. 13 

possession and received the full price which he demanded upon sell- 
ing it by mere notices or labels attached to the article itself is a ques- 
tion which can not be treated adequately in this report. But if there 
be evils arising out of these practices they could be cured by a simple 
amendment to the effect that such notices, labels, and the like should 
not constitute a contract between the owner of the patent and the 
ultimate purchaser, which would entitle such owner to maintain suit 
for infringement. It has been an established principle of the law 
for a century that the courts will enjoin the meddling interference 
of a stranger with the rights of contracting parties, and the courts 
have enjoined third parties from inducing one party to a contract 
to break his agreement with the other. The Oldfield bill takes away 
from the owner of a patent the right of injunction based upon an act 
of contributory infringement consisting in inducing a party to a con- 
tract to break his contract obligations as a purchaser from the owner 
of a patent. Stated in another way, the Oldfield bill proposes to 
take away from the owner of a patent the right to bring his suit 
against a contributory infringer whose infringing acts not only con- 
stitute contributory infringement, but also induce the violation of a 
contract with knowledge of such contract, while the right to bring 
suit against contributory infringement where no contract question 
is involved is left unimpaired. Your committee can see no reason iu 
public policy, from the standpoint of economics, or as a matter of 
equity, why the owner of a patent shall not be left the right to com- 
mence an action for infringement against his licensee who exceeds 
or varies from the terms and conditions of his license. The Oldfield 
bill proceeds upon the theory that a suit for injunction or for " in- 
fringement," as it is termed in the bill, is based upon the contract, 
whereas in truth the suit is brought for an infringement of the rights 
of the patentee by an act outside of the contract and not authorized 
by it. A consideration of the character of the patent grant, bearing 
in mind that it must be exclusive or it is valueless, demands that the 
right to restrain violations shall be left unimpaired. This because 
any other remedy is wholly ineffective, induces the breach of agree- 
ments, leaves the owner of a patent practically remediless no matter 
how aggravated the circumstances of the violation may be, and 
results in a multiplicity of suits for damages where a single action 
followed by an injunction would prove effective. 

Fourth. The antitrust features of bill. 

It would unduly extend this report to consider separately the ob- 
jections to the antitrust features of the Oldfield bill. Your com- 
mittee wishes again to call especial attention to the analysis by Mr. 
Hill and Mr. Wiles in the separate papers accompanying this report, 
but we unite in saying here that these provisions appear to us to be 
unwarranted, unfair, and clearly class legislation, because: 

(a) They single out the owners of patent property and place upon 
them restrictions and limitations which do not apply to the owners of 
other property. 

(h) Because they attach to the fact that a patent is used in con- 
nection with a business in restraint of trade the conclusive presump- 
tion that the restraint is unreasonable, whereas no such presumption 
applies where a patent is not used. 

(c) Because they introduce as penalties a denial of a right of 
action where a patent is involved and also the forfeiture of the pat- 



14 REVISION OP THE PATENT LAWS. 

ent. These penalties are drastic in their nature, repugnant to the 
principles of our Government, and subversive of the constitutional 
right of the citizens of this country. 

{d) If any amendment of the character under discussion to the 
Sherman laAv is to be made, it should be of general application and 
not confined to contracts or businesses involving the use of a patent 

{e) In view of the recent decision of the Supreme Court in Stand- 
ard Sanitary Manufacturing Co. v. United States (226 U. S., 20), 
it is apparent that under the law as it now stands it is adequate to 
reach unlawful combinations seeking to operate under the guise of 
patents. 

Your committee has considered the brief prepared by the Patent 
Law Association of Washington upon the Oldfield bill and commends 
to the members of this association its careful study in connection 
therewith. We especially call attention to the appendix to the brief 
above mentioned, w^hich contains the gist of the testimony adduced 
at the hearings before the House Patent Committee. The printed 
report of these hearings makes a large volume, and the labor of con- 
densing the testimony has been well performed b^^ the writers of the 
brief. 

Your committee is not and we believe this association should not be 
put in a position of being antagonistic to all amendments to the pat- 
ent laws. On the contrary, we advocate the passage of such laws as 
will increase the efficiency and perhaps the authority of the Patent 
Office. To this end we think that the Patent Office should be given 
more room, a larger examining corps, better salaries to the officials 
who pass upon the patentability of inventions, and power to control 
and expedite the prosecution of applications before the office, and 
that there should be restriction of the number of appeals within the 
office. These measures were in part provided for in the original bill, 
but were not considered at the hearings and were wholly eliminated 
in the revision. 

We further believe that the number of Federal judges in those cir- 
cuits where the bulk of patent cases are tried should be increased, 
especially in view of the recent equity rules adopted by the Supreme 
Court, which will have the effect of imposing additional labor upon 
the courts in the trial of patent cases. If the number of judges shall 
be suitably increased and due regard shall be had in their appoint- 
ment to their qualifications to try patent cases, the evils which are 
complained of with respect to the administration of the patent law 
in the courts would be largely obviated. We recommend the adop- 
tion of the following resolutions: 

Resolved; That the Patent Law Association of Chicago after due considera- 
tion of House bill No. 23417, known as the Oldfield bill, including the report of 
Mr. Oldfield accompanying said bill, the testimony adduced before the House 
committee on certain features of the bill (specifically the section relating to 
compulsory licenses and the section relating to resale restrictions), and the 
reports by its committee specially appointed to consider and report on said 
bill, is opposed to the passage of the said bill as a whole, and to the enactment 
of any of its provisions in their present form and recommends in lieu thereof: 

1. That further and careful consideration be given to the needs of the Patent 
OflJce. In this connection we refer to the report of the President's EflRlciency 
Commission, rendered December 10, 1912, in regard thereto. 

.2. That„consideration be given to the necessity for additional district judges 
i4^certaSi?^jtiircuits. 




KEVISION OF THE PATENT LAWS. 15 

3. That the members of this association confer with their clients and acquaint 
them and the public with the provisions of the Oldfield bill and the action of 
this association thereon, and also with the conditions affecting our patent sys- 
tem, to the end that any measure designed to affect or modify the patent law 
may receive due consideration with regard to the interests of the inventors, 
manufacturers, and the purchasing public. 

4. That no legislation, especially no legislation of the revolutionary character 
of this bill, be enacted affecting the patent system of this country without full 
hearing upon the amendments in the form in which they are reported to Con- 
gress for enactment. 

Respectfully submitted. 

Chables C. Linthicum, 
John W. Hill, 
Louis K. Gillson, 
Otto R. Barnett, 
Wallace R. Lane, 
Russell Wiles, 

Committee, 
January 14, 1913. 



BRIEF ANALYSIS OF THE OLDFIELD BILL (NO. 23417) AS 
AMENDED AUGUST 8, 1912. 

[By John W. Hill.l 

Gentlemen : As one of the committee appointed at the meeting 
of the Patent Law Association, on November 22, 1912, in accordance 
with the resolution of November 21, authorizing the creation of a 
committee to gather information relative to bills before Congress 
amendatory of the patent laws, I have been assigned the duty of 
presenting to this body, as briefly as may be and without argument, 
my interpretation and understanding of the features of House bill 
No. 23417, pending in the second session of the Sixty-second Con- 
fess, generally known as the Oldfield bill. This bill was originally 
introduced on April 16, 1912, and was referred to the Committee 
on Patents and ordered to be printed. 

On August 8, 1912, Mr. Oldfield, from the Committee on Patents, 
submitted his report, together with an amendment to the original 
bill, which consisted in striking out all after the enacting clause, 
and submitting substantially a new bill. This amended bill was 
''committed to the Committee of the Whole House on the state of 
the Union and ordered to be printed." 

The amended bill under consideration is printed as Union Calendar 
No. 370, H. R. 23417, Report No. 1161. 

The latter report refers to the report of the committee above men- 
tioned. 

The title of the bill is, "A bill to codify, revise, and amend the laws 
relating to patents." 

Notwithstanding the' title, it is not a codification, and a portion 
of the bill is particularly directed to and intended in aid of "An act 
approved July 2, 1890, entitled 'An act to protect trade and com- 
merce against unlawful restraint and monopolies,' " as frequently ap- 
pears in the bill. 

This is what is generally known as the Sherman Act, and is set 
forth in 26 Statutes at Large (209, 219), and 28 Statutes at Large 
(570), found in volume 7 of Federal Statutes annotated, page 336, 
et seq. 

In order to secure a clear understanding of the object and pur- 
poses of the bill, it therefore becomes necessary to carefully study the 
Sherman Act. 

Inasmuch as the intent of the enacting body has much to do with 
the interpretation of a statute, it is important, so far as is possible, 
to also gain an understanding of the viewpoint and purpose of the 
sponsor of the bill, and this may be secured from a careful reading 
of Mr. Oldfield's report. 

"Without in any way impugning his motives, or attacking his sin- 
cerity, it may be said that he approaches the subject in a distinctly 
antagonistic or hostile spirit, as is clearly shown throughout his 
whole report. 
16 



EE\^SION OF THE PATENT LAWS. 17 

As one illustration, we may quote from his report on page 14. 
where, in discussing the particularly drastic features of section 5 
of the bill, he says : 

In other words, a patent is so dangerous an instrument that its mere use in 
such a combination should be held conclusive evidence of the unreasonableness 
of the restraint exercised. 

I do not quote this for the purpose of prejudicing anyone against 
Mr. Oldfield's position, but for the purpose of clearly indicating 
what that position is. 

Another thing that may indicate his viewpoint is the seizure and 
forfeiture clause in section 4 of the bill in respect to patents. 

It would seem that the inevitable effect of this must be that this 
seizure and forfeiture of patents, which Mr. Oldfield favors, is a 
distinct and additional penalty for any breach of the trust law by 
those who own patents. 

With this introduction we may take up the bill. 

The bill is apparently intended to cover three substantially distinct 
points. 

First. The amendment under present section 4884, limiting the life 
of patents to 19 years from the date of filing the application, but in 
no case to a longer period than IT years. 

Second. Compulsory license. 

Third. That portion in aid of the Sherman Act, and obviously 
intended to prevent the use of patents to aid in evasion of the anti- 
trust law. 

We may take these up in the order presented in the bill. 

LIMITATION or THE TERM OF PATENTS. 

The obvious intent of this part of the section is to speed the course 
of the application in the Patent Office, and to prevent the burying 
of applications for a term of years by taking advantage of the time 
allowed for responding to office actions. 

Just what effect an act of this kind would have upon the defenses 
in a patent suit is not clear. Whether the office would be required 
to certify the time actually consumed by the Patent Office, or the 
courts in supporting the application, or the time involved in inter- 
ference proceeding, and in some cases all of them, or whether those 
matters would be left open as matters of defense in seeking to limit 
the term of a patent, is problematical. The bill, however, is clear 
as to the intent, and this portion of the section requires no further 
explanation. 

COMPULSORY LICENSE. 

This portion of the act provides that any person may apply in the 
district court of the district wherein the owner of a patent, or any 
interest therein, has a residence or established place of business, and 
file a bill in equity, setting forth briefly the facts and circumstances. 
The court shall thereupon hear the person applying for the license 
and the owner of the patent. It is then provided that if the ap- 
plicant shall allege and prove to the satisfaction of the court that 
the invention is being withheld or suppressed by the owner, or those 
claiming under him, for the purpose or with the result of preventing 

S. Doc. 151, 63-1 2 



18 KEVISION OF THE PATENT LAWS. 

any other person from using the patented process, or making, using, 
and selling the patented article, in competition with any other article 
patented or unpatented, which is made, used, or sold by the owner 
of the patent, or those under him, and the applicant shall also prove 
that the patent was filed in this country more than three j^ears before 
the filing of the bill in equity, the court shall order the owner of the 
patent to grant a license in such form and on such terms as the court 
ma}^ deem just, i^rovided that this provision shall not apply to the 
original inventor, who has not obligated himself or empowered an- 
other jDerson to hold such invention. An appeal by the aggrieved 
party is provided for, as in other patent cases. The law is man- 
datory. The important features of this part of the section are : 

First. That the district court has jurisdiction in any district 
wherein the owner of the patent, or the owner of any interest therein, 
has a residence, or an established place of business. 

The second point is that if a manufacturer is putting a structure 
or device upon the market, whether patented or otherwise, and he 
shall own a patent upon a similar device which, if marketed, would 
anywhere stand side by side or come in competition with the article 
put out, he must also manufacture the patented article, or upon 
the facts being shown the court will order him to license a com- 
plaining party, who may then manufacture and sell the patented 
device in competition with the owner. 

The only exemption from this is that the original inventor is not 
subject to it, provided he has not obligated himself or empowered 
another person to suppress or withhold the patented invention. 

The effect of this on business, I believe, is obvious. 

THE ANTITRUST FEATURES OF THE BILL. 

The second section of the bill, so marked (the third feature), pro- 
vides for the amendment of present section 4899, and the first clause 
thereof is a copy of that act. 

The next two paragraphs are apparently inspired by the decision 
of Henry v. Dick. One paragraph specifically provides that no pur- 
chaser, lessee, or licensee of a patented article sold bj^ the owner of 
a patent or owner of any interest therein, or one having authority to 
sell, shall be liable for infringement of the patent because of any 
breach of the contact, while the second provides that a licensee under 
the patent shall not be liable for infringement of the patent because 
of any breach of the license contract. 

Mr. Oldfield devotes several pages to the discussion of this section. 
Henry v. Dick is familiar to the members of this association, and the 
line of argument by Chief Justice White is substantially that by 
Mr. Oldfield in his report. The apparent result and obvious purpose 
is to throw all action for breach of contract in patent matters, license 
or otherwise, into the State courts, depriving the litigant of the right 
of protection by the Federal courts, except in cases where diverse 
citizenship and the necessary jurisdictional amount can be shown. 
The obvious effect will be to deprive the licensor or the seller of 
one familiar element of security, which, as a general rule, is more 
effective in guaranteeing faithful performance on the part of the pur- 
chaser or lessee than any ordinary penalty for breach of contract. 



REVISION OF THE PATENT LAWS. 19 

Section 3 provides that the foreign owner of a United States pat- 
ent — that is, anyone who is not domiciled within the United States — 
shall within three months after filing his application for letters pat- 
ent or the acquirement of his interest in the patent appoint some 
person in the United States upon whom process or notice of any 
proceeding brought under the provision of the act may be observed. 

As Mr. Oldfield points out, without a provision of this kind a 
compulsory license could not be successfully enforced, as title to all 
patents that are held in nonuse could be transferred to some non- 
resident and be beyond the reach of the law. 

Section 4 sets forth that no patent shall be used to restrain unrea- 
sonably, or to monopolize, or to attempt to monopolize any part 
of trade or commerce * * * except in such articles as and to the 
extent that they embody the invention or discovery so patented. It 
also provides that no patent shall be used as a part of any com- 
bination in restraint of trade, and monopolize, etc., and winds up 
with the statement that — 

Any patent used in any manner prohibited by this act may be condemned by 
like proceedings as are provided by law for the forfeiture, seizure, and con- 
demnation of property imported into the United States contrary to law. 

This section is probably aimed at the decision in Henry v. Dick. 

Section 5 and the balance of the bill, it would seem, ought more 
properly to be introduced as a general bill, for if the features thereof 
are desirable they should not be tacked onto a patent bill. They ought 
to cover all trade, whether in patented articles or otherwise, with 
possibly a provision that the monopoly of a patent should not protect 
the owner or owners thereof in the acts prohibited by the statute. It 
would seem that the only section in the latter part of the bill that 
might properly be admitted as a patent section, and be applicable 
only in the consideration of patent matters, is section 12, which pro- 
vides that the defendant may set up as a defense in any infringe- 
ment suit, the fact that the defendant, or the real party in interest 
at the time of the infringement, or at the beginning of the suit, was 
engaged in carrying on business in violation of the provisions of the 
antitrust act. 

This has been attempted as a defense a number of times, and I 
believe it may be considered settled at the present time that the 
courts will not consider this a defense in an infringement suit, as the 
law now stands. 

Section 5 refers particularly to the antitrust or Sherman Act, and 
provides that if it shall appear that any combination was entered 
into, existed, or exists which was or is in restraint of trade, and that 
any patent has been used in connection therewith, or to secure 
that result, such restraint shall be conclusively deemed to be unrea- 
sonable and in violation of the act as to any party thereto who, in 
carrying on business in which such combination relates or in connec- 
tion therewith, offends as to any of the particular provisions therein 
mentioned and labeled from {a) to (l)^ inclusive. They are: 

{a) This paragraph particularly refers to fixing the reselling or 
leasing price. 

(b) Particularly restricts any provision to restrain the purchaser 
or vendee from freely purchasing any other article from any other 



20 BEVISION OF THE PATENT LAWS. 

person or using any other article obtained from any other person. 
That is, as in the ca'^se of Henry v. Dick, and similar cases. 

(c) Particularly refers to and prevents the vendor from requiring 
from the vendee, as a condition of sale, any other patent or a license 
thereunder or interest therein to prevent competition. 

(d) This paragraph makes it illegal to attempt to restrain com- 
petition by making any discrimination in the price based upon 
whether the vendee purchases from the vendor articles of a particular 
quantity or at aggregate price, but provides that it shall not apply 
in dealing in wholesale quantities. This clause would appear to 
apply to general dealing and ought not to be limited to dealing in 
patented articles alone, if such clause is desirable. 

(e) Provides that a vendor of a patented article shall not attempt 
to prevent or restrain competition by refusing to supply to any person 
requesting the same, such patented article, or by seeking to supply 
the same only upon terms or conditions in some respects less favorable 
than are accorded to any other person. 

Broadly speaking, this would appear to do away with exclusive 
licenses and agencies and to force the dealer in patented articles or 
the manufacturer to sell the same to anyone and every one insisting 
upon it, on the most favorable terms he had supplied or sold anyone 
else, notwithstanding what the vendor's interests be or what licenses, 
exclusive or otherwise, he had given, or what interference it might 
make with the arrangements he had made to supply the market. 

(/) Is similar to (e)^ and would seem to eliminate exclusive licenses 
and agents in any territory, and to provide anyone desiring to begin 
business in such exclusive territory with effective means to force the 
vendor or manufacturer to supply him with the patented articles on 
as favorable terms as he had supplied the exclusive agent. 

(g) Is of the same tenor in dealing with — 

certain persons or classes of persons, or to those doin^t business in certain dis- 
tricts or territories — 

and, like (/) and (e), is intended to force competition by enabling 
those desiring so to do to compel the manufacturer to supply them 
with the patented article on as favorable terms as he has supplied it 
to anyone else or in any other territory or district. 

(h) This paragraph provides that no one shall do business directly 
or indirectly under any other name than his own, and seeks to pre- 
vent any evasion of the law in this respect. Mr. Oldfield, in referring 
to it in his report, i^articularly refers to the custom practiced by the 
Standard Oil and Tobacco Trusts. 

(/) This i^aragraph provides that the vendor of a patented article 
shall not seek to attemi:>t to destroy competition by giving away 
patented articles or selling them at a price below the cost of produc- 
tion and distribution. This is evidently aimed to prevent the familiar 
practice of fre<>zing out the little fellow by selling below cost, and is 
also referred to by Mr. Oldfield as a custom of the Standard Oil and 
i obacco Trusts. 

U) This paragraph particularly prohibits securing information of 
the business of a competitor by bribery, or through an agent or em- 
ployee, or through a State or Federal official, or " by any illegal 
means whatsoever." ^ ^ t^ 



REVISION OF THE PATENT LAWS. 21 

^K It would seem that the question of patents ought not to enter into 
^^This alleged abuse, and it is difficult to understand why a drastic fea- 
ture like this should be limited to and tacked onto a patent bill, 
carrying as a penalty the forfeiture of the patent, and wherein those 
who are so fortunate as not to own patents would not be subject to 
any penalty whatever. 

{k) The matter included in this clause is similar to that in para- 
graph (e), but refers more particularly to the price upon raw or 
manufactured material which he controls and which is required by a 
competitor. 

This is peculiar, as it prohibits the vendor of any patented article 
from fixing an unreasonably high price upon raw or manufactured 
material not subject to a patent which he controls, and which is re- 
quired for producing a competitive article, with a view of preventing 
competition with the patented article. 

AYhat the patent has to do with it is not clear, unless the penalty of 
forfeiture is depended upon. If he owns the raw or unpatented mate- 
rial, it would seem that he ought to have the right to sell it for such 
price as he can get in the market, and not be forced to sell it to a 
competitor at a lower price than he could otherwise secure, and for 
the purpose of aiding a competitor. 

(l) This is a blanket clause, and its meaning is clear from the 
clause itself. It reads as follows : 

If a vendor of any patented article attempts to prevent or restrain comx)eti- 
tion by use of any unfair or oppressive means or methods of competition. 

In other words, Mr. Oldfield, after pointing out the importance 
of making the law specific, so that business interests may fully under- 
stand it, seeks to throw in this blanket clause, which leaves it as in- 
definite as it was before, except for those specific things mentioned. 
This is clearly shown in his report at the bottom of page 15. 

Section 6 provides that whenever after the institution of proceed- 
ings in equity under section 4 of the Sherman Act (the section giving 
circuit courts jurisdiction to issue restraining orders and prohibi- 
tions to restrain violation of the act, and wherein the Attorney Gen- 
eral is directed to bring such suits) and it appears to the court in 
any preliminary hearing that there is reason to believe, or upon final 
hearing the court shall find that any combination was entered into 
or exists in restraint of trade, and that as a result the defendants, 
or any of them, have the control of supplying the market with any 
patented article reasonably required in the manufacture or pro- 
duction of any other, or for general consumption, and that there is 
no adequate opportunity to immediately substitute any other article 
therefor of equal utility, the court shall have the power, by order 
or injunction or otherwise, to authorize the sale at a price to be fixed 
by the court, until some other adequate substitute can be provided. 
It is provided, however, that when said patented article is being sup- 
plied to any person under contract and the price is thus fixed, such 
price shall prevail unless or until the contract is declared void or 
expires. (Attention is called in this connection to clause {d) of sec- 
tion 9, hereinafter mentioned, providing for voiding contracts.) 

Mr. Oldfield submits in his report that the above section is par- 
ticularly aimed at the practices charged against the United Shoe 



22 REVISION OP THE PATENT LAWS. 

Machinery Co. It is not clear, however, why the section should be 
limited to owners of patents, and why it should not include other 
lines necessarily factors in business, such as banks, for example. 

Section 7 makes no reference to patents or pat-ent matters. The 
section is im.portant in that it provides that any action by the Gov- 
ernment where the defendant is found guilty " shall to the full extent 
to which the facts and issues of fact or law were litigated, and to the 
full extent to which such fact, judgment, or decree would constitute 
m any other proceeding an estoppel as between the Unite(J States 
and such defendant, shall also constitute conclusive evidence of the 
same facts as against such defendant, and be conclusive as to the 
same issues of law in favor of any other party in any other proceed- 
ing under the Sherman Act. 

In other words, the finding of fact by the court shall be conclusive 
in any action brought by any other part}^ for damages or otherwise. 

Mr. Oldfield frankly admits that this is the purpose and explains 
his understanding of the present weaknesses in cases against trusts. 

The real significance of this section can not be grasped without 
considering section T.of the Sherman Act, which reads: 

Any person who shall be injured in his business or property by any other 
person or corporation by reason of anything forbidden or declared to be un- 
lawful by this act may sue therefor in any circuit court of the United States 
in the district in which the defendant resides or is found, without respect to 
the amount in controversy, and shall recover threefold damages by him sus- 
tained and the costs of suit, including a reasonable attorney's fee. 

Under the above section, diversity of citizenship, or any specific 
amount in controversy, are not requisite, and service may be on the 
defendant where found. If, then, the Attorney General, on behalf of 
the Government, has found the defendant guiltj^, and the Oldfield 
Act makes that finding conclusive in other suits by other parties, as 
in section 7 of the Oldfield bill, the result is apparent. 

If this is desirable, it would appear unnecessary to confine it to 
patent matters, or make it a part oi a bill " relating to patents." 

Section 8 is along the lines of section 7, in that it provides that 
when in any suit by the Government a judgment or decree inter- 
locutory, or final, has been entered, finding that defendants, or any 
of them, have violated sections 1, 2, or 3 of the act by making use of 
any patent, any persons deeming themselves injured may intervene 
and be made a party and damages established, as in an independent 
suit, under section 7 of the Sherman Act above quoted. In such suit 
the court may grant orders of attachment, appoint a receiver, or take 
such other proceedings conformable to equity as may be necessary 
to insure satisfaction of any claim. Such intervention, however, 
shall not delay the disposal of the principal proceeding, nor abridge 
any rights to bring separate and independent action under section 7 
of the Sherman Act. If, however, a party shall proceed by both 
methods, the court may order an election. 

Such intervening petition, or original suit, may be brought at any 
time within three years after the final decree of judgment entered in 
the civil proceedings brought by or on behalf of the Government 
establishing such violation, provided the claim is not barred at the 
time of the passage of this act. 

Section 9 provides that when any proceeding is had under section 
4 of the Sherman Act, and it shall appear that any patent has been 



REVISIOX OF THE PATENT LAWS. 23 

used in any manner prohibited by this act in connection with any 
combination, and such combination has been adjudged illegal under 
section 1 or section 2 of the Sherman Act, the court shall have juris- 
diction, 

{a) To partition '* any property " owned by the company, among 
the owner, or groups of owners, or if owned by one or more corpora- 
tions, among the stockholders thereof in proportion to their interests. 

{b) To sell such property, either as a whole or in parcels, as may 
be deemed necessary, to pay debts or incumbrances thereon, " or to 
re-create conditions in harmony with the law," and may forbid said 
owners, or if the owners be one or more corporations, forbid the 
stockholders from purchasing . at such sale, and may prescribe the 
conditions of sale. 

(c) To make such restraining orders or prohibitions as may be 
necessary or proper " to re-create conditions in harmony with the 
law," including prohibitions of any acts, conduct, methods, or devices 
enumerated in"the act as indicating unreasonable restraint. 

(d) '• To declare void as against the defendants, or any of them, 
any contract entered into as part of the condition found to be in re- 
straint of trade." 

The relief granted in section 9 is specifically stated to be in addi- 
tion to, and not exclusive of other relief permitted by law, or by the 
Sherman Act. 

Your attention is particularly directed to clauses b and c of this 
section, in which the former gives the court jurisdiction to order 
the sale of the property of the alleged trust to re-create conditions 
in harmony with the law, and the latter jurisdiction to make re- 
straining orders and prohibitions necessary to re-create conditions 
in harmony with the law. 

Both these clauses are apparently designed to give the court very 
broad powers unhampered by the language of the act. It would be 
a matter of judicial discretion as to what those " conditions " may 
be. The court alone may determine that, and the act itself ap- 
parently offers little limitation of this vast power. 

Section 10 provides that when in any proceeding in equity under 
section 4 of the Sherman Act it shall appear that any patent has 
been used in any manner prohibited by the act, then any person who 
has been injured or is threatened with injury in his business or 
property by the defendants or any of them, by reason of anything 
forbidden or declared to be unlawful by the Sherman Act, and any 
State of the United States may at any time intervene in said suit 
to protect his interests, or if the intervener be a State, the interests 
of the citizens of such State, and any person interested or the State 
may, after final decree in such case, petition said court for protection 
or redress in case of any violation of said decree, and the court shall 
have power to take such action as may be appropriate. 

Section 11 provides that whenever in any proceeding under section 
4 of the Sherman Act. it shall be alleged that the defendants, or any 
of them, have entered into a combination which was or is in restraint 
of trade, and that in connection therewith any patent is used in any 
manner prohibited by the act, no department or official of the 
United States shall, unless and until such allegation shall be found 
on final decree to be unfounded, enter into a contract with any such 
defendant for the purchase or supply, or purchase from any such 



24 KEVISION OF THE PATENT LAWS. 

defendant, or any other person, any article, or any article manu- 
factured by such defendant, or any subsidiary or controlled com- 
pany, association, or firm, except so far as required so to do by some 
existing contract unless — 

First. The article so manufactured is reasonably necessary for the 
purpose of the Government, and no adequate opportunity exists to 
substitute any other article of equal utility and reasonable price. 

Second. The officer authorized to make contracts or purchases of 
that nature shall, after full investigation and before such contract 
or purchase is made, have certified in Avriting to the facts set forth 
in the preceding paragraph, and have filed with or mailed to the 
department of justice and the commissioner of corporations copies of 
such certificate. 

The language of this section is called to your attention. 

It will be noted that no proof is required, but upon a district 
attorney bringing action under section 4 of the Sherman Act against 
any corporation, the mere allegation is sufficient to prohibit the 
Government or any department thereof from entering into any con- 
tract with the defendant, or directly or indirectly purchasing from 
such defendant any article or any article manufactured by said de- 
fendant, or by any subsidiary or controlled association or firm, 
imless — 

First. It is reasonably necessary for the Government, and there 
is no opportunity to secure a substitute of equal value at a reasonable 
price, or 

Second. An officer authorized to make contracts or purchases shall 
investigate and report to the department of justice and the commis- 
sioner of corporations. 

Why this drastic section should be limited to cases in which a 
patent is involved, or patented articles provided, is not clear. The 
injustice of it would seem to be apparent from even a casual reading. 

Section 12 has already been alluded to, and is the section which 
provides that the fact that the complainant is a combination in re- 
straint of trade may be set up as a defense in any patent suit for 
infringement. 

Section 13 is simply a section of definitions, which explain them- 
selves. 

From reading Mr. Oldfield's committee report, it is apparent that 
he is incensed by the difficulties presented and outcome of the suits 
of the Government against the Standard Oil and Tobacco Trusts, 
which he mentions many times in his report, and is impressed with 
the fact that greater power is apparently necessary to make such 
actions effective. He has thus taken the first opportunity, which is 
apparently this bill, to include those powers, with the result that his 
bill to regulate patents includes measures, which, if desirable, should 
b^ of general character and ought not to be limited to patents alone. 
The result is, that if the bill is enacted into a law it will inflict 
severe penalties upon all who may be unfortunate enough to own 
or do business under patents, from which penalties those who have 
no patents are exempt. 

The parts that apply particularly to patents, if they are desirable, 
it would seem, could be framed in short, brief acts that would be 
clearly understood, while those parts that are of a general nature 
should be so framed as to cover all lines of business, whether or not 



EEVISION^ OF THE PATENT LAWS. 



25 



patents are involved, and if deemed necessary, a short or brief state- 
ment that the monopoly of a patent should not save the owners 
thereof from the effects of the general law. 

Forfeiture of the patent would appear to be harsh and unnecessary. 
If it is provided that a suit will be abated or a bill dismissed for want 
of equity upon showing that a patent has been employed in restraint 
of trade, it is probable that without waiting for the action of the 
Attorney General the defendant would search all sources to produce 
evidence which would be effective in protecting them, and thoroughly 
and completely prevent the improper use of patents in the manner 
suggested, by trusts or illegal combinations. 

The constitutionality of the bill and the forfeiture clause has not 
been considered in this hasty analysis. 

November 29, 1912. 



*rHE OIDFIELD BILL, H. R. 23417, AS REVISED AUGUST 8, 1912. 

[By Louis K. Gillson.] 

Brief Analysis of Paragraph 1 of Section 1. 

This paragraph, relating as it does to the term for whch patent 
protection shall be granted, involves no constitutional question, as 
Congress is given authority by the Constitution to determine the limit 
of time during which the inventor shall have the exclusive control 
of his invention. 

The first paragraph of section 1 of the bill reads as follows : 

That secton forty-eight hundred and eighty-four of the Revised Statutes be, 
and the same is hereby, amended so that the section shall read as follows: 

" Sec. 4884. Every patent shall contain a short title or description of the 
invention or discovery correctly indicating its nature and design, and shall 
have annexed thereto and made a part thereof a copy of the specification, 
claims, and drawings of the application therefor, to which it shall refer for 
the particulars of the invention or discovery, and contain a grant to the 
patentee, his heirs or assigns, of the exclusive right to make, use, and vend 
the invention or discovery throughout the United States and all Territories 
and possessions under the jurisdiction thereof for the term of seventeen years. 
But every patent granted for an invention shall be so limited as to expire 
nineteen years from the date of the filing in this country of the application 
upon which the patent was granted, exclusive of the time actually consumed by 
the Patent Office or the courts in considering the application and, where the 
application has been involved in interference, of the actual time in which it 
has been so involved; and in no case shall the patent be in force more than 
seventeen years." 

Section 4884 of the Revised Statutes in its present form reads as 
follows : 

Every patent shall contain a short title or description of the invention O) 
discovery, correctly indicating its nature and design, and a grant to the 
patentee, his heirs or assigns, for the term of seventeen years of the exclusive 
right to make, use, and vend the invention or discovery throughout the United 
States and the Territories thereof, referring to the specification for the par- 
ticulars thereof. A copy of the specification and drawings shall be annexed 
to the patent and be a part thereof. 

It will be seen that the first sentence of the section under con- 
sideration differs from the present statute only in the order of 
phrases, inconsequential variations in wording, and the inclusion 
within the territorial scope of the patent of the insular and any 
other possessions of the United States. 

The last sentence of the paragraph under consideration is a 
radical modification of the present law as to the term for which 
patents may be granted. While the iT-year term is retained, it is 
subject to curtailment to the extent that the time occupied by the 
inventor in the prosecution of his application exceeds two years; any 
period during which the application may have been involved in 
interference, however, not being taken into account. 
26 



1 



I 



KEVISION OF THE PATENT LAWS. 27 

Under sections 4885 and 4894, both of which are to remain in force, 
the applicant has the privilege of delaying his response to any office 
action for a period not to exceed one year, and to delay the payment 
of the final fee for a period of not to exceed six months from the 
date of allowance ; but he can avail himself of the privileges granted 
by these statutes only to the extent of two years in the aggregate 
without shortening the term of his patent ; that is to say, following 
the statement of the bill, no patent shall continue in force for a longer 
period than 19 years from the date of application, exclusive of the 
time consumed by the examination on the part of the Patent Office 
and by interferences. 

Apparently the term of the patent is to be defined within the grant, 
whether it be for IT 3^ears or for a less period. AA^ien, therefore, the 
date of issue is more than two years subsequent to the date of appli- 
cation, it will be necessary for the Patent Office to compute the time 
elapsing between the date of each office action and the date of receipt 
of a responsive action by the applicant, and if these several periods 
shall aggregate more than two years the excess shall be deducted 
from the iT-year period and the term of the patent stated accordingly 
as being for a given number of years, months, and days. 

It is quite conceivable that errors in computation may occur, and 
it is more than probable that the term as fixed by the Patent Office 
will often prove to be unsatisfactory to the applicant. If any cor- 
rections become necessary they can doubtless be made b}^ certificate. 

In connection with litigation arising near the close of the term 
for which a patent is granted, the date of expiration of the patent 
will doubtless frequently be called into question and the difficulties 
and expense of patent litigation will thereby be increased. It may be 
a question, also, whether in the case of a patent granted on a renewal 
application, the expiration of the patent must be within 19 years 
from the date of the original application. Section 4897 of the Re- 
vised Statutes provides that — 

Any person who has an interest in an invention or discovery, whether as 
inventor, discoverer, or assignee, for which a patent was ordered to issue upon 
the payment of the final fee. but who fails to make payment thereof within 
six months from the time at which it was passed and allowed, and notice 
thereof was sent to the applicant or his agent, shall have a right to make an 
application for a patent for such invention or discovery the same as in the case 
of an original application. But such second application must be made within 
two years after the allowance of the original application. 

In these cases it has been the practice to state in the patent the 
date of the original application and the date of renewal, and the 
renewal has consisted of a mere petition, the original drawings, 
specification, and oath being used. If, however, the part}^ in interest 
elects to avail himself of the right conferred by section 4897 to file 
a new application for the patent, it would seem to follow that the 
patent when issued would be granted on that application. As the 
bill under consideration provides that " every patent granted for an 
invention shall be so limited as to expire 19 years from the date of 
filing in this countr}^ of the application upon which the patent was 
granted," why should not this term be computed from the date of the 
second instead of from the date of the first application? That there 
is some ground for this view is indicated by the penalty imposed by 
section 4897, whereby the patent is not effective against any article 
or thing made before the date of its issue. 



28 REVISION OF THE PATENT LAWS. 

If, then, there is any room for this contention, why may we not 
expect that the next applicant who may wish to delay the issue of 
his patent will prolong the prosecution of his original application 
as long as he may see fit, and then forfeit it by failure to pay the 
final fee and file a new application ? 

The machinery by which the term of a patent is to be determined 
is cumbersome, to say the least, and we ma}^ now turn to the report 
of the committee to ascertain Avhy it is deemed necessary. 

On page 1 of the report it is said : 

There is widespread dissatisfaction with the operation of our patent laws. 

On page 2 we read : 

The committee's investigation disclosed that the existing dissatisfaction with 
our patent system is due to a variety of causes, but that two causes entirely 
distinct in character are principally operative: (1) The abuses of the rights 
granted by patents; (2) the defects of our present system in administering the 
law in the Patent OflSce and in the courts. 

That the readjustment of the term is prompted mainly by the 
second ground of complaint against the system, viz, the manner of 
administering the law in the Patent Office, is apparent from the fol- 
lowing, which is the only statement in the report on the subject now 
under consideration: 

Section 1. The first part of this section ending with the word " years," in 
line 3, on page 52, is an amendment of the existing law. The new feature is 
embodied in lines 3 to 11 by which it is provided that every patent shall be 
limited to 19 years from the date of filing the application exclusive of the time 
actually consumed by the Patent Oflace or the courts in considering it. 

This provision is aimed at the procrastination that has become proverbial 
on the part of applicants for patents. 

Under the existing law an applicant can fritter away years in correspond- 
ence, each time delaying many months before replying to letters concerning 
trivia] details. The effect of this is practically to prolong the duration of the 
monopoly. In some instances the preliminary proceedings have been drawn out 
over a course of 12 or 15 years. 

The telephone and automobile patents, both of which have a well-known 
judicial history, are notorious instances of this practice. Under the amend- 
ment now proposed this practice of delay will be eliminated. The applicant is 
allowed two years within which to present the merits of his claim to a patent. 
Certainly this is enough. When he files the application he is familiar with the 
merits of his invention as well as with the history of the art. In the course 
of two years, with reasonable diligence, he can present his case and answer the 
objections that are raised against his application. Of course the applicant 
ought not to be charged with any delay for which he is in no way responsible. 
Hence the time consumed by the Patent Office or by the courts or interference 
proceedings is not to be computed as a part of the two years allowed to prose- 
cute the claim. 

It is submitted that the conclusion of the committee that procrasti- 
nation on the part of applicants for the purpose of delaying the issue 
of patents is a common evil is hardly warranted by the facts. That 
procrastination does sometimes occur is unquestionably true, but 
aside from the two instances referred to in the rejDort, viz, the Ber- 
liner patent and the Selden patent, there have been very few cases, 
indeed, which have attracted general attention or which have resulted 
to the serious disadvantage of the public. 

It is significant that in one of the two cases specifically referred to 
in the report, the effort to unwarrantably and unreasonably prolong 
the period of patent protection availed nothing. In the Berliner 
case the Supreme Court found that the charge that the prosecution of 



REVISION OF THE PATENT LAWS. 29 

the application had been unwarrantably delayed was unfounded and 
that in point of fact the applicant had repeatedly urged earlier con- 
sideration of his case. 

In the case of the Selden patent the applicant evidently had an 
early appreciation of the ultimate development of the automobile 
art, and seizing upon a feature which he believed would be essential 
to that development, although not able himself to propose a practical 
embodiment of it, he filed an application for patent and endeavored 
to keep it alive until others should successfully work out the diifi- 
culties. The real problems involved in the construction of a prac- 
tical automobile having been solved by others, this applicant puts 
the case in condition for allowance and secures a patent under which 
he endeavors to control the entire industry. 

The proposed change in the law was doubtless prompted by the 
following statement of the court of appeals in Columbia Motor 
Car Co. V. C. A. Duerr & Co. (the Selden case, 184 Fed., 892) : . 

But the patentee acted wholly within his rights. He merely took advantage 
of the delays which the law permitted him. He followed strictly the statutes 
and rules of procedure, and the courts can not exact a greater measure of 
diligence from him. When the patent was granted under the authority of the 
law, it became entitled to the consideration accorded to any other patent. If 
the statutes and rules permit unnecessary delays, they should be changed ; but 
we reject the view that this court owes any duty to relieve against their 
operation. This patent, even if it be useful only for tribute, must be viewed 
without prejudice and with absolute judicial impartiality. 

The elaborate opinion delivered by the court in this case suggests 
the thought that in order to free itself from any possible charge of 
prejudice based upon the long delay in the Patent Office it viewed 
the various lines of defense very much more critically than might 
have been expected in the case of a patent which many feel should 
have been held invalid on demurrer. 

The few flagrant attempts to unwarrantably prolong the term of 
a patent may call for legislative remedy; but whether all of them 
constitute a sufficient foundation for the radical change proposed, 
involving, as it does, cumbersome machinery, certain to work to the 
disadvantage of a vast number of well-intentioned applicants and 
certain to give rise to controversies in the Patent Office and in the 
courts, is very questionable. 

It is not a fair presumption that every applicant who delays the 
prosecution of his application for a period of two years is without 
justification for his course and is seeking an undue advantage. In 
the case of inventions broadly new the applicant is usually much in 
advance of his time. Even though it may be that in the case of these 
radical departures necessity was the mother of the invention, the 
fact is that the public in many instances had not realized the exist- 
ence of the necessity. There is imposed upon the inventor, in addi- 
tion to the problems of proper construction and manufacture, the 
conduct of a campaign of education before the public can be induced 
to recognize and accept the invention. In such cases, therefore, the 
term of 17 years is all too short, and no imposition is practiced 
upon the public if the inventor seeks to make the date of commence- 
ment of his patent protection substantially coincident Avith the date 
of recognition of his invention by the public. 

Nor is it true in the case of every applicant, as stated in the report 
of the committee, that " when he files the application he is familiar 



30 REVISION OF THE PATENT LAWS. 

with the merits of his invention as well as with the history of the 
art." 

The early patents to Westinghouse on the air brake contained in- 
congruities. Referring to them, a prominent law^^er, now deceased, 
who represented a defendant sued by the Westinghouse Co., remarked 
that the solicitors who took out the patents should not be too severely 
criticized, for undoubtedl}^ Mr. Westinghouse himself had a very in- 
adequate conception of the scope of his invention until after his 
patent had actually issued. The same might doubtless be said of very 
many other inventors, as it is a common experience, in connection 
with the soliciting of patents, that the full scope of the invention is 
ascertained both by the inventor and the solicitor only after repeated 
actions. 

An amendment of section 4884 which would prevent the repetition 
of the histories of the Berliner and Selden applications may be jus- 
tified, but it should be at once simple and direct and of such nature 
that it will not work hardship to well-intentioned inventors. Better 
that some opportunity for an imposition be permitted to remain than 
that all should be held down by a close restriction and that the ma- 
chinery of the law be made cumbersome and uncertain in its action. 

While perhaps not Avithin the scope of a mere analysis of a pro- 
posed bill, it is suggested that if the present law as to term must be 
changed, due consideration should be given to that large class of in- 
ventors who will suffer by a hard and fast rule imposing a limitation 
to the period of prosecution, especially when this period is limited to 
the short space of two years. In some countries the patent office 
indicates in each action the date Avithin which response must be made 
by the applicant, and upon a proper showing this time is usually 
enlarged. By such a provision the abuses complained of might be 
controlled without doing injustice to those inventors who would 
suffer by a too hasty prosecution of their applications. 

December 3, 1912. 



I 



I 



THE OLDFIELD BILL— COMPULSORY LICENSES. 

[By O. R. Barnett.] 

Under this heading the bill presents virtually two phases, (1) the 
section which in terms relates to the specific grant of licenses by 
order of court under certain conditions, and (2) the sections which, by 
depriving the patent owner of his full right to enforce limitations in 
license grants by enjoining unwarranted practice of the invention 
outside of the terms of the license, virtually result in the grant of a 
broader license, for which broader license the patent owner is limited 
to such compensation as he may recover in the way of damages for 
violation of the limitations of the express license. 

1. The provisions which specifically provide for the grant of com- 
pulsory licenses are found in the proposed amendment of section 
4884 of the Revised Statutes. These provisions read as follows : 

The district court wherein the owner of a patent or of any interest therein 
has a residence or established place of business shall have jurisdiction to com- 
pel the granting of a license under such patent under the circumstances herein- 
after set forth. 

The person applying for such license shall file a bill in equity setting forth 
briefly the facts and circumstances, and the court shall thereupon hear the' 
person applying for such license and the ow^ner of the patent. If the applicant 
shall allege and prove to the satisfaction of the court that the patented inven- 
tion is being withheld or suppressed by the owner of the patent, or those claim- 
ing under him, for the purpose or with the result of preventing any other per- 
son from using the patented process, or making, using, and selling the pat- 
ented article in the United States in competition with any other article or 
process, patented or unpatented, used, or made, used, and sold, in the United 
States by the owner of the patent or those claiming under him or authorized 
by him, and also allege and prove that the application for said patent was 
tiled in this country more than three years prior to the filing of such bill in 
equity, the court shall order the owner of the patent to grant a license to the 
applicant in such form and upon such terms as to the duration of the license, 
the amount or royalty, the security for payment thereof, and otherwise as the 
court, having regard to the nature of the invention and the circumstances in 
the case, deems just : Provided, however, That nothing herein contained shall 
be construed to authorize the court to compel the granting of a license by the 
original inventor who has not obligated himself or empowered another person 
to suppress or withhold such invention. 

From the order of the district court granting or refusing such license appeal 
may be taken by the party aggrieved to the circuit court of appeals in the same 
manner and form as in other cases arising under the patent laws : Provided, 
That the provisions of this section shall not apply to any patent granted prior 
to the passage of this act. 

It will be noted that this radical departure from the traditional 
patent system of this country is drastic in its nature. The court has 
no discretion to grant or refuse a license, provided the state of facts 
specified in the proposed amendment is established. 

It appears from the report accompanying this bill that this phase 
of the proposed amendment to our law is directed to — 

the evils arising from owners of patents suppressing the same or prohibiting 
their use in order to prevent competition with other patented or unpatented 

31 



32 REVISION OF THE PATENT LAWS. 

articles sold by said owners of patents * * * Widespread evils of which 
just complaint is made are due mainly to the abuses of the patent, either by 
making it the means of securing a monopoly more extensive than that covered 
by the patent or through accumulating competing patents and suppressing part 
of the same. 

Continuing, after discussing the opening paragraph of the section 
as to the term for which piatents shall be granted, the report says : 

The remainder of this section is new and has for its object preventing what is 
popularly known as shelving competitive patents. Buying up patents for the 
purpose of precluding competition has been and is a practice of industrial con- 
cerns, and the harm of it has been recognized and dealt with in almost every 
industrial nation except the United States. In one form or another the laws 
of Great Britain, of Canada, of Germany, vnd of France, as well as many other 
nations, lodge in the respective Governments the power to liberate the manu- 
facture, sale, and use of all patented articles. That patents in the United 
States are bought up in large numbers for the purpose of suppressing competi- 
tion can not be doubted. It has been the subject of comment in the public press 
for years. 

The report then refers to certain of the barbed-wire, straw-stacker, 
spring-toothed harrow, and paper-bag cases, as conspicuous instances 
which have been before the courts. Continuing, the report says : 

Capital seeking to control industry through the medium of patents, proceeds 
to buy up all improved patents pertaining to a particular field. The effect of 
this it to shut out competition that would be inevitable if the various patents 
were separately and adversely held. 

We thus apprehend clearly the known evils to which this section is 
directed, and while it further appears from the report that Mr. Old- 
field considers that the exception as to the original inventor saves the 
section from any objectionable scope, it is at least open to serious 
question as to whether he has fully apprehended the possible and 
reasonably probable effect of this amendment in its present sweeping 
form. If, for example, the owner of a patent grants territorial 
licenses to various persons, one of whom is selling a competitive 
article which is not patented, which he finds he can market to better 
advantage than to pay royalties under his license, or if one of the 
licensees devises and patents a simpler competitive device or a better 
one, for which reason this particular licensee discontinues marketing 
the original patented device, would not the case come squarely within 
the ])road provisions of this section, without any fault on the part of 
the owner of the patent ? It would seem that this would be clearly a 
case where one claiming under the owner of the patent has withheld 
or suppressed the patented invention with the result of preventing 
any other person from using the patented invention in competition 
with some other article, whether patented or unpatented, which is 
being sold by such particular licensee. The statute provides that 
where the specified facts are alleged and proven the court shall order 
the owner of the patent to grant a license to the applicant. In such 
case would the court be obliged to order a license coextensive with the 
United States or coextensive only with the territory in which the 
expressly granted license was not being operated under or coextensive 
with such parts of the country as were not covered by the territorial 
licenses then existing which were being worked? 

Again, it is a matter of common knowledge that patented inven- 
tions, and entire arts, indeed, are frequently developed either by 
firms or partnerships who employ men of inventive ability for that 



REyiSION OF THE PATENT LAWS. 33 

purpose, or who back them financially and take a joint interest in 
the inventions. Such employers, whether individua:ls, firms, or 
corporations, or such copartnerships of the inventor, certainly are 
not the oriofinal inventor, and therefore the compulsory license pro- 
vision would apparently apply to them as to all inventions which 
may be thus developed at their expense and owned in whole or in 
part by them. Equitably, such individuals, firms, or corporations^ 
stand in the same position as the original inventor, and may en- 
counter the same difficulties as he in commercially developing the 
patented inventions, especially if, as is frequently the case, they 
develop several inventions, and it takes all of their energy and capital j 
to commercially promote some one of them. 

Another class of cases where this statute would apply is where 
there is no lack of capital or enterprise on the part of the actual 
owner of a part or all of the patent titles, but where after years of 
experiment and the expenditure of much capital a business has been 
developed in the course of which the inventions have been perfected 
and various alternative and potentially competitive forms have 
been developed and patented. Must the individual or corporation 
which perhaps has accomplished the seemingly impossible, and in 
so doing has actually developed, created, and patented at its own 
expense a large line of patents — must such a patent owner there- 
upon market not only the perfected forms of the invention but also 
all other operative forms which said owner has thus demonstrated 
and brought out or as an alternative must he submit to granting 
licenses under those forms of the invention which the patent owner 
himself does not see fit to put on the market either because to do so 
would be a commercially undesirable multiplication and complica- 
tion of the business, or because some one form is considered to be the i 
perfected embodiment of the invention. Instances will readily occur 
where a competitor who has sat by and allowed the enterprising 
manufacturer to expend his money in such development work may 
obtain a license under some one of the forms of invention which the 
patent owner has developed, and may then, by adding his own im- 
provements, develop a formidable competition which will make it 
impossible for the enterprising manufacturer to recover in profits 
the vast sums which he has expended in developing a new art. 

As a concrete and possible extreme case I have in mind one con- 
cern which undertook to develop automatic machinery in a certain 
industry and for years struggles with a seemingly impossible prob- 
lem and actually expended over $500,000 before success was in sight. 
A considerable part of this expenditure represented inventions which 
were developed and patented and many of which were not used in the 
finally perfected form of the machine. Under the Oldfield bill this 
company could be compelled to grant licenses under any of these 
patented inventions which are not embodied in the final form of the 
machine, and with such license or licenses as a foundation, and the 
knowledge of this company's success and how it was obtained, it 
would be a relatively simple matter for competitors who had been at 
no expense in the development of this art to bring out a machine 
which would actively compete with the machine now on the market, 
and thereby keep the margin of profit so close that the company 

S. Doc. 151, G3-1 3 



34 KEVISIOI^ OF THE PATENT LAWS. 

wliich had spent half a million dollars in developing a neAv machine 
would probably never get its money back. 

I recall a similar instance in developing automatic machinery for 
the manufacture of electric light bulbs. This was held for years 
by those skilled in the art to be a problem impossible of solution. 
But with the knowledge that if it could be solved the company would 
for the full life of its patents control every invention in this field 
which it might devise, money was poured out like water until success 
was finally attained. Here again the perfected machine is the out- 
come of years of experimentation and invention during which several 
alternative and practical machines have been developed and patented 
by this same company. 

Again, I have in mind an inventor who, starting with nothing, 
revolutionized an art in 10 years, during which time, advancing from 
one invention to a still better form, he has taken out nearly 100 
patents in this art, many of which were practiced for a while only 
to be discarded by him as he advanced to a more perfected form 
of device. 

These instances suggest the inquiry as to whether, if the patent 
law is to be amended so as to prevent the buying up of patents merely 
for their suppression, it should not be much more carefully guarded 
in the interests of legitimate owners and developers of patented in- 
ventions as distinguished from mere purchasers, for purposes of sup- 
pression and monopoly, of patents which have been previously de- 
veloped and patented by others. 

•2. We next come to a consideration of what I think may be legiti- 
mately termed the indirect compulsory or involuntary license, for 
such I think would be one of the necessary results of certain other 
amendments proposed by the Oldfield bill. 

Thus the amended section 4899 provides that any purchaser, lessee, 
or licensee of a patented article sold by the owner of the patent or 
by the owmer of any interest therein or by any person having author- 
ity to sell the same shall be liable to an action for infringement of the 
patent because of any breach of the contract of sale or of any pro- 
vision thereof; also, that no licensee shall be liable to an action for 
infringement of the patent because of a breach of such license or of 
any provision thereof. 

It therefore appears that, if a territorial license be granted and 
the licensee thereupon operates outside of the territory granted to 
him, he can not be proceeded against as an infringer, but may only be 
sued for damages. In other words, the patent owner will be com- 
pelled by the operation of the statute to virtually extend the license 
to the entire territory of the United States, at the option of the 
licensee. In like manner, a license granted on condition, for the 
protection of the licensor's own business, that articles furnished to 
the licensee shall be resold only at a specific price, becomes, by opera- 
tion of law, a license to resell at any price. A sale, lease, or license of 
a patented machine for use in a certain art which will not compete 
with or affect the business of the licensor or of some other licensee 
in a different art becomes by operation of law a license to use the 
given machine in any manner which the licensee may see fit. 

An inventor obtained a patent on a machine designed primarily 
for use in the refining of cottonseed oil. This machine gave a marked 
advantage to the patentee's company, and because of such advantage 



EEVISIOK" OF THE PATENT LAWS. 35 



I 

^H was of great profit in that art to the patentee. It developed, liow- 
^■•ever, that there was a demand for it in the manufacture of oleo- 
^■'margarine, and also a demand for it in the manufacture of soap. 
^■He sold certain of these machines with an express license limiting 
^B their use to the manufacture of oleomargarine, as appears from the 
^■license plate on each machine, and others which were expressly and 
^^Bin like manner limited for use in the manufacture of soap, thereby 
^B preserving to the patentee the advantage which the invention gave 
^B his company in the refining of cottonseed oil. But, under the Oldfield 
" bill, the purchasers of these machines might, if they saw fit, use them 
in the refining of cottonseed oil, or otherwise to the injury of the pat- 
entee, leaving him no recourse but a suit for damages and without any | 
right to enjoin such licensed use as an infringement of the patent. I ' 
submit that this clearly results in indirectly forcing in effect a com- 
pulsory license as to matters beyond the express license. 

In the report of the committee it appears that this section is di- 
rected at the alleged harmful practices which have grown up under 
the doctrine pronounced in the Heaton Peninsular Button Fastener 
case and finally affirmed by the Supreme Court in the A. B. Dick 
case; and the report states that^ — 

the section does not outlaw the restrictions or chanicterize them as illegal in 
any manner, * * * rpj^^ only possible effect of this section is to declare 
that the breach of such restrictions shall not give rise to action for infringement 
of the patent. * * * -pQ permit the action for infringement in the class of 
cases described is to ignore and override the jurisdiction of the State courts in 
a realm where they have exercised jurisdiction from the beginning. 

Reverting, then, to the fact that the conditions as to use, etc., were 
not supported by the Supreme Court until the Dick decision in March, 
1912, the report says: 

The question is not what use has been made, but what use will be made, of 
this newly declared privilege. It easily can be converted into a plausible justi- 
fication of commercial practices that have been outlawed in every State in the 
Union. * * * Some doubt has been expressed as to whether or not section 
2 would apply to existing patents. Undoubtedly it would. Applied to existing 
patents, the law would not conflict with any provision of the Constitution. 

3. Somewhat in the same line of an involuntary license by opera- 
tion of law^ would seem to be the result of section 12, to the effect 
that— 

it shall be a complete defense to any suit arising cut of any contract or for 
the infringement of any patent that the plaintiff or the real party in interest 
* * * at the time of the alleged infringement, at the time of the beginning 
of said suit, was engaged in carrying on business in any manner or to any 
extent in violation of the provisions of this act. 

When we come to consider the sweeping and minute antitrust pro- 
visions of this act and the fact that even if this act become law there 
must necessarily be for years many instances where, until adjudicated 
by the courts, it is a very serious question whether contracts or trans- 
actions entered into with good faith do constitute a violation of some 
one of the numerous antitrust provisions of the act, it will be seen that 
at every turn the patent owner will proceed at his peril as to every 
patent right ow^ned b}^ him, for no matter wliat the contract entered 
into or the act done by him ma}^ be, nor wdiether it relates remotely 
or not at all to the particular patent for infringement of which suit 
is begun, if, as a matter of fact, it shall be adjudicated that in any 



II 



36 REVISION OF THE PATENT LAWS. 

manner or to any extent he has violated any provision of that act 
he is thereupon and thereby deprived of the right to bring suit for 
infringement of any patent then owned by him — that is to say, by 
operation of law he to that extent grants a compulsory or involun- 
tary license to all who are at the time infringing any patent or patents 
which he may own. As to this the committee's report says that this 
provision enables a defendant to set up as a defense to any suit 
brought for infringement of a patent or arising out of a contract that 
the plaintiff is or was at the time the cause of action arose engaged in 
an illegal restraint of trade. 

Of course, just why a patent owner should be outlawed as to his 
right of action for the protection of his patent property only because 
as to some one patent owned by him he has been found to have vio- 
lated some provision of this act is not clear. 

Thus, for example, if he owns 100 patents, 1 of which relates to 
hooks and eyes and 99 of which relate to telephones or to any other 
field of industry, it will be a complete defense to any suit for enforce- 
ment of a contract relating to one of his telephone patents or to 
enjoin infringement of a patent which he may own on an aeroplane 
for the defendant to say that at the time the alleged cause of action 
arose the plaintiff was engaged in some transaction as to his hook- 
and-eye patent which, in some pos'sible way, constituted an alleged 
violation of some obscure provisions of this act as to which nobody 
knew whether he was violating the act or not until the matter had 
been actually adjudicated. 

The foregoing, I believe, fully summarizes the provisions of the 
Oldfield bill which either expressly provide for compulsory licenses 
or necessarily result in substantially granting compulsory or involun- 
tary licenses, and also ver}^ briefly suggests some feAv of the questions 
which I believe may be fairly considered as to the wisdom and effect 
of the bill in its present form. 



THE OLDFIELD BILL, H. R. 23417, AS AMENDED AUGUST 8, 1912. 

[By Wallace R. Lane.] 

Brief Axalysis of Sectiox 2 and Suggestioxs Eelative Thereto. 

Section 2 of the Oldfield bill attempts to add two paragraphs to 
section ^1:899 of the Kevised Statutes, which has been in force in 
practically the same form since 1870. 

The proposed additional paragraphs read : 

Xo purchaser, lessee, or licensee of a patented article sold by tlie owner of 
tlie patent, or by the owner of any interest therein, or by any person having 
authority to sell the same, shall be liable to an action for infringement of the 
patent because of any breach of the contract of sale or of any provision thereof. 

Xo person who obtains a license of the owner of a patent or of the owner of 
any interest therein, to use any art or process, or to make, use, and sell any 
article protected by such patent, shall be liable to an action for infringement of 
the patent because of a breach of such license or of any provision thereof. 

The purpose of this section of the bill, as the author of it alleges, 
is directed to " the evils arising from the vendor of a patented article 
fixing the price at which it must be resold to the public." and '' aris- 
ing from the vendors of patented articles prohibiting their use 
except in connection with other unpatented articles purchased from 
them," and the two sections quoted are suggested by the author as a 
'• remedy for these evils." 

Speaking specifically of these two paragraphs of section 2, the 
author of the bill says that they " deal with a practice that has 
grown up in the past 15 years of restricting the right of purchasers 
of patented articles to use and resell the same," and that — 

It is now very common for vendors of patented devices to placard the si>eci- 
men with a notice requiring the purchaser to obtain his unpatented supplies 
for use in connection with the device exclusively from the owner of the patent 
on penalty of his being dealt with as an infringer if he fails to do so. Likewise 
patented articles are sold with similar notices stipulating a uniform fixed retail 
price below v^-hich the purchaser is forbidden to sell the article. 

These paragraphs of section 2 are designed to prevent any suits 
for contributory infringement against a purchaser, lessee, or licensee 
of a patented article, arising out of any breach of the implied con- 
tract existing by virtue of the notices which are attached to the 
patented articles at the time of their sale, lease, or license. 

The cases following Heaton Peninsular Button Fastener Co. v. 
Eureka Specialty Co. (77 Fed.. 288), cited and approved in the case 
of Henry v. Dick (224 U. S., 1), sanctioning this phase of contribu- 
tory infringement, need no discussion here. 

The uniformity of these decisions has been the cause of the rapid 
growth in the practice of imposing restrictions of various kinds upon 
patented articles by the attachment of notices, some of which have 
embodied unusual requirements in the sale and distribution of the 
article and led to the much quoted and referred to dissenting opinion 
of Mr. Chief Justice White in the Dick case mentioned. 

37 



38 EEVISIOX OF THE PATENT LAWS. 

This dissenting opinion is largely relied upon as the basis for the 
argTiments which are advanced in favor of this section of the pending 
bill. 

It has been held by the Supreme Court that neither the owner 
of a copyright on a book nor the manufacturer and vender of a 
proprietary^ drug compounded under a secret formula can legally 
establish resale prices through notices attached to these articles, 
regardless of whether contracts were made with the dealers or not, 
and that such restrictions can only be made under patent rights. 
(Bobbs-Merrill Co. v. Straus, 210 U. S., 339; Dr. Miles Medical Co. v. 
John D. Parks, 220 U. S., 373.) 

The author o? the Oldfield bill says : 

As a result of tliese two lines of decisions, we have this state of affairs : 
The owner of a patent, even though it be for but a minor improvement, can 
sell the specimen articles, obtain the purchase price therefor, and at the same 
time restrict the purchaser's right to use what he owns by compelling him 
to purchase all unpatented supplies from the owner of the patent. Likewise, 
the manufacturer of patented articles may dictate the price at which both 
jobbers and dealers are to resell the articles to the ultimate consumer. And 
this is not confined to isolated transactions, but is valid when applied to a 
vast number of sales. * * * The resale price restrictions compel the 
observance of the same uniform price by thousands of dealers scattered 
throughout the Nation, 

The argument in support of the bill, after thus stating the condi- 
tion which exists, explains the proposed new paragraphs in section 
2 of the Oldfield bill as follows: 

The section does not outlaw the restrictions or characterize them as illegal in 
any manner. It leaves the restrictions exactly as they are in so far as they 
posit contractual relations between the owner of the patent and purchasers 
of specimen patented articles. If such restrictions regarded as contracts are 
legal, they are not invalidated by this section. The only possible effect of this 
section is to declare that the breach of such restrictions shall not give rise to 
an action for infringement of the patent. 

The vendor still has unimpaired all rights under the contract and is not 
impeded in the enforcement of such rights. 

The fact that the chief justice of the Supreme Court has called 
the attention of Congress to the situation which exists and because 
of its being urged from various quarters, the members of the patent 
committees of Congress seem determined to pass some legislation 
to curtail the alleged evils existing under this system. 

In the argument for the Oldfield bill, it is stated that — 

Considered apart from legal niceties and viewed in the light of public con- 
venience and trade generally, section 2 is a highly necessary enactment. 

This statement fairly summarizes Avhat seems to be the general 
sentiment of the patent committees of Congress relative to this 
matter. 

From a reading of the very adroitly written argument in support 
of the bill under the head of State Rights, one might infer that 
little of the patentee's rights were being taken away by this provision, 
as it states that — 

The only effect of section 2 is to declare that a violation of a contractual i 
duty shall not be treated as an invasion of a statutory right, but shall be dealt sj 
with as the invasion of a contractual right. It is submitted that that is all 
that is involved. 

The interests promulgating the paragraphs of section 2 of the Old- 
field bill under discussion, in spite of this argument, must, and I 



EEVISIOX OF THE PATEXT LAWS. 39 

think do. realize that the effects which will necessarily result from the 
passage of this section of the bill are : 

First. To render nonenf orcible. under any of the restrictions now 
commonly following- the patented articles, through the notices placed 
upon them and now recognized as legal and a proper exercise of the 
patentee's right; that is, it takes away the remedy of a suit for in- 
fringement. 

Second. To permit a defendant who has A'iolated restrictions con- 
tained in the notices attached to the patented articles sold to them, 
to raise the Sherman law and State antitrust statutes as a defense. 

Third. To obviate the enforcement of any implied contracts aris- 
ing by virtue of license notices and to limit the owner of the patent 
to such recovery as he may have for violation of a direct contract with 
the dealer or consumer. 

Fourth. To entireh^ obviate any and all control by the patent 
owner of the resale of his patented article. 

The principal arguments which have been advanced against the 
bill, as a sort of supplement to the dissenting opinion of Mr. Chief 
Justice White, are : 

First. That the proposed paragraphs, to section 2 of the Olclfield 
bill, would necessitate the bringing of a multiplicity of suits to en- 
force the contracts, while a single suit in the Federal court, under the 
present decisions of the court, would dispose of the question. 

Second. A patentee should have as much right to impose any 
reasonable restrictions on the sale or use of his patented device as 
he has to sell it for use in one place for a single purpose and for a 
limited time. 

Third. Because the Government has granted exclusive use to the 
right to make, use, and sell the invention, the franchise granted is as 
much invaded, by violating any restriction placed upon the machine 
by the owner of the patent, as it would be if the infringer were to 
actually make, sell, or use the patented thing. 

Fourth. That one who knowingly brings about a breach of the 
license restriction is just as guilty of contributory infringement as is 
a party who assists in the manufacture of an infringing machine or 
uses an infringing process. 

Fifth. That a person is not required to buy a machine having op- 
pressive license restriction notices upon it, and that the owner of the 
patent, in imposing these restrictions, has to take his chances in 
making the sale of the machine, and the party buying the machine, 
with such restrictions, should be bound by them. 

Sixth. In a great many instances, in building up a business under 
a new device, the only way to proceed is to either sell it on very low 
terms or give it away and have it eventually paid for by having the 
one who buys it pay for the devices or material to be used in con- 
nection with it: and that this is the fairest means of collecting a 
royalty, and, therefore, anyone who violates these restrictions should 
be held as an infringer. 

Seventh. That a third party — not a party to the original contract 
of sale — may by his acts cause or contribute to the infringement to 
such an extent that he could not be reached by any action under the 
contract, and should be held as a contributory infringer if he has 
knowledge of the restriction. 



40 REVISION OF THE PATENT LAWS. 

Eighth. That where a machine is specifically designed for use in 
connection with a certain device or material, and could only be used 
successfuU}?- in connection with such device or material, the owner 
of the patent on the machine would not be afforded the protection to 
which he is entitled, unless he can compel the purchaser of his ma- 
chine, thus specially designed, to use such device or material as is 
furnished by him for that purpose. 

Ninth. That because the inventor gave to the public something 
which did not before exist he should be given an absolute monopoly 
for the period of years fixed by the statute, and failure to afford this 
protection will discourage invention, and nothing is withheld from 
the public except what attaches to the patented monopoly. 

Tenth. That the courts already have held that unreasonable re- 
strictions in attempting to control the sale of patented devices will 
be a ground for the refusal of an injunction or the setting aside of an 
injunction once granted, and, therefore, it is unnecessary to pass an}^ 
legislation affecting these license restrictions. (See Light Co. v. 
Electric Co., 53 Fed., 598; also Standard Sanitary Mfg. Co. v. 
United States (Bathtub case), 226 U. S., 20.) 

The language of the court of appeals in the opinion in the Light 
Co. case cited is frequently referred to in support of the latter con- 
tention, as follows : 

When it shali be made to api^enr that some one to wbom in fairness and good 
conscience these complainants should sell their lamps has been arbitrarily 
refused them, save upon oppressive and unreasonable terms, it will be time to 
consider whether the complainants should be allowed to continue in possession 
of the injunction. 

Other arguments are advanced, such as the constitutional right of 
Congress to pass such an enactment; that such an enactment, if 
passed, could not apply to existing patents; that restrictions should 
not be put upon the rights of patentees which are not imposed upon 
vendors or licensors of unpatented articles, but there is no occasion 
to discuss the merit or demerit of these contentions here. 

In my opinion we are destined to liaA^e some legislation, relative to 
the license restrictions, which compel the purchaser of a patented 
article or process to buy all supplies, used in connection with that 
article or process, from the owner of the patent, or which attempt to 
absolutely fix the resale price of a patented article or process. But I 
feel that the congressional committee will carefully consider any 
suggestions which will in effect accomplish this result without totally 
destroying all rights of action for infringement against licensees, 
their agents or vendees, under the patent. 

Inasmuch as it seems inevitable that Congress is going to pass 
some legislation along this line, I personally should favor the draft- 
ing of some i:)rovision which Avould either leave the ])resent proposed 
amendment in a form which could not possibly be construed as oust- 
ing the owner of a patent of all of his rights for infringement against 
a licensee who is attempting to operate outside of his license, or to 
draft a new section which would prevent the owner of a patent from 
attaching labels or notices which attempt to control the sale of an 
unpatented standard article of manufacture which has a market 
independent of the patented device and which is not made with 
special adaptation thereto, when sold for use with the patented ma- 



I 



REVISIOivT OF THE PATENT LAWS. 41 

chine, or attempts to fix the resale price, and thus control the article 
after it has been once sold and is in the hands of the owner. 

If it is impossible to prevent the passage of the second and third 
paragraphs of section 2 of the Oldfield bill, I would urge that a 
clause embod^dng in substance the following should be added to the 
section : 

Provided, That nothing herein shall prevent the maintenance of a suit for 
infringement against a licensee, his agents and vendees, for the use of a portion 
of the invention not included in his license, or who in any way violates any 
part of the franchise not embraced in the license grant or assignment. 

This AA' ould make paragraphs 2 and 3 of the section read : 

No purchaser, lessee, or licensee of a patented article sold by the owner of 
the patent, or by the owner of any interest therein, or l)y any person having 
authority to sell the same, shall be liable to an action for infringement of the 
patent because of any breach of the contract of sale or of any provision thereof. 

No person who obtains a license of the owner of a patent, or of the owner 
of any interest therein, to use any art or process, or to make, use, and sell any 
article protected by such patent, shall be liable to an action for infringement 
of the patent because of a breach of such license or of any provision thereof. 

Provided, That nothing herein shall prevent the maintenance of a suit for 
infringement against a licensee, his agents and vendees, for the use of a por- 
tion of the invention not included in his license, or who in any way violates any 
part of the franchise not embraced in the license grant or assignment. 

Such an addition to the present section would enable the patentee 
who had made a grant of his patent for a certain purpose, to sue. as 
an infringer, anyone who used the patented deA'ice for another pur- 
pose than that for which he was licensed, and would thus preserve 
the rights in that particular. 

It seems vital that the rights of the owner of a patent to maintain 
an action for infringement Avhen the licensee is operating outside 
of the terms of his license, as distinguished from any A^olation of its 
terms, should be retained, and this section of the Oldfield bill, if 
enacted, should certainly haA'e in it a clause which would so interpret 
the preceding paragraphs as to prevent any construction Avhich 
would depriA'C the patentee of this right, simply because he failed to 
include in the terms of his license all of the things which Avere found 
at some future time to be necessary to protect his interest in that 
part of his rights under the patent which he reserved to himself by 
not granting it to the licensee, lessee, or part owner. 

If I thought it possible to prevent legislation relative to license 
restrictions, I should adA^se opposing any change in the present law 
as administered by the courts, for I belieA^e that the recent utter- 
ances of the Supreme Court in the Bathtub case, taken in connection 
Avith the case of Dick v. Henry, indicate that there is little need for 
any such legislation. HoAvever, as I feel certain that some change 
is bound to be made by Congress, in Adew of the promises made by 
its Members, I urge the aclA-isability of considering either the sug- 
gestion made as to the proposed additional clause to the last para- 
graph of section 2 of the Oldfield bill, or the suggestion of an amend- 
ment to section 4889 of the ReAdsed Statutes which Avould meet the 
committee partially in its demands. 

Chicago, Decemher ^4, 1912. 



THE ANTITRUST FEATURES OF THE PENDING PATENT LEGIS- 
LATION. 

[By Russell Wiles.] 

Sections 4 to 12. inclusive, of the pending measure, known as the 
Oldfield bill, embrace the so-called antitrust features. My first effort 
has been to determine whether there is any fundamental and under- 
lying principle in this proposed legislation, so that by considering 
the bill as the embodiment of a single principle, its operation could 
be clearly understood. I have been unable to discover any such prin- 
ciple, and, in fact, whatever general principle there may be in these 
sections of the bill seems wholly inconsistent with the theory under- 
lying the proposed amendments to section 4899, relative to restricted 
licenses. The theory underlying the prohibition of restricted licenses 
is, as expressed by Mr. Oldfield in his report, that there is no reason 
in economics or in common sense why a patented article should differ 
from an unpatented one as to having its price fixed. The underlying 
idea of the antitrust features of the bill is quite the contrary, it being 
that patented articles are of a peculiar and nefarious character, 
prima facie open to grave suspicion, so that acts which would be 
perfectly lawful with reference to unpatented articles, or when com- 
mitted hj those who do not own patents, are illegal and criminal 
when performed by those who own patents or sell patented articles. 

I have been informed that these antitrust features of the bill are 
largely taken bodily from proposed antitrust legislation offered by 
other Members of Congress, and that when it became evident that 
nothing Avould be done with it as a straight antitrust measure, it was 
taken up by the Patent Committee and revised enough to be within 
the purview of that committee: and certain it is that the bill gives 
every appearance of having been drawn in this way. It bristles with 
provisions which belong in an amendment to the Sherman Act, and 
which have no more relation to the patent law than has the statute 
with reference to sending gambling matter through the mails. The 
situation is as if an antigambling literature bill had been introduced 
and when obstacles were thrown in the way of its passing, it had 
been taken up by the Patent Committee and amended to read " any- 
one who sends a'anibling literature through the mails and uses a 
patent shall be liable." 

To discuss the propriety, from the point of view of political econ- 
omy, of all the proposed rules as to trusts and monopolies contained 
in this bill, would be an intenninable undertaking. It may, however, 
be stated that the first point which will strike the eye of any patent 
lawyer is that a wholly illogical distinction is made between patented 
and unpatented articles, and between the owners of patents and other 
persons. Certainly a patent is not such a nefarious grant that its 
owner should be punished for the same act very much more severely 
than one who does not own a patent. 
42 



EEVISIOX OF THE PATEXT LAWS. 4S 

A second point, perhaps arising from the same cause, is that this 
part of the bill, having been drawn for general purposes and 
amended by simply putting in the word " patent '" wherever neces- 
sary, it is doubtful whether the bill means anything at all. Certainly 
the antitrust features of the bill will give us material for endless 
litigation if they are ever enacted, and I challenge any patent lawyer 
to take practically any section of the bill and tell what it means. A 
third point, which will at once strike every patent lawyer, is that it 
is probably perfectly easy to evade many of the antitrust provisions 
of the bill by having the patent owned by one party and the nefarious 
acts done by a licensee. With this brief introduction, I will turn to 
the more prominent sections of the bill. 

Section 4 provides that " no patent shall be used to restrain un- 
reasonably or to monopolize or attempt to monopolize any part of 
the trade or commerce among the several States — except in such 
articles as and to the extent that the}^ embody the invention or dis- 
covery so patented,'' and further that if a patent be used in viola- 
tion of the act it may be condemned. What this means I have not the 
slightest idea. The author of this bill apparently had never read 
Patterson v Kentucky. Of course we. as patent lawyers, know that 
a patent is really never used for anything but to sue with. It has 
been held repeatedly that the only thing which a patent gives is the 
right to exclude, and that is the very nature of the grant itself. In 
Fuller V. Berger it was held that the only means of enforcing this 
right was by the equitable power of injunction, and therefore, when 
boiled down to its last analysis, all a patent is is a right to obtain an 
injunction with an ancillary right to damages and profits. Xow, 
of course, viewed from a legal point of view, it is absolutely im- 
possible to '' use " a patent (that is, the patent itself) excepting to 
exclude others from practicing the identical thing covered by the 
patent. If this wasn't certain before it has been made certain by 
the decision of the Supreme Court in the bathtub case, but most 
patent lawyers have always believed that that stated the law. Xow, 
since a patent never is used and never can be used to monopolize any 
trade except that in the patented article, I have searched in vain for 
some possible way to violate this section, and if it means what it 
seems to mean, it is a section which can not possibly be violated if 
one tried. Xow, since it could hardly be assumed that Congress 
would pass a statute which meant nothing, if it were enacted, the 
courts would probaVjly try to find some meaning for it, and what 
meaning they might guess I do not know. It is possible that some 
courts might be induced to hold that if a combination was in restraint 
of trade generally and it owned the patent, then the patent was. in 
the sense of this section, " used." in which case the present section 
would mean that all patents owned by ever}' combination in restraint 
of trade would be contraband and forfeit. This, however, is a mere 
guess. As the section stands, and read as any law3Tr will read it, 
it doesn't mean anything at all. Perhaps the section is aimed at re- 
stricted licenses. If it is it doesn't say so, and this also is a guess 
and a poor one, for the grant of license is hardly a " use." 

The foregoing is the only one of the antitrust provisions which 
stands alone and of itself. The remainder are all in the form of 
definitions or amendments of the Sherman Act, and therefore, before 
leaving this section it will be well to turn to section 12, which pro- 



44 REVISION OF THE PATENT LAWS. 

vides that it shall be a complete defense to am- suit arising out of any 
contract or for the infringement of any patent that the plaintiff 
at the time of making such contract, or of its alleged breach at the 
time of the alleged infringement (or) at the time of the beginning of 
said suit was engaged in carrying on business in any manner or to 
any extent in violation of the provisions of this act. Breaches of 
the remaining antitrust provisions are not breaches of this act but are 
breaches of the Sherman Act. and therefore section 12 has to do only 
with section 4 of the antitrust parts of the act, and the earlier pro- 
visions of the act already discussed b}' other members of the com- 
mittee. This section 12, of course, imposes a terrific penalty and one 
which has usually been disapproved by the best authorities on juris- 
prudence. As a general rule it is better practice to impose a uniform 
punishment rather than to deny even the worst criminal the right to 
civil relief in the courts for breaches of contract or for invasion of 
his property rights. Section 12 outlaws any person who violates 
this act, and practically denies him civil relief, at least all civil relief 
ex contractu and civil relief ex delicto if the tort consists of the 
infringement of a patent. It may be doubted whether such legisla- 
tion alfords equal protection of the laws. It is certainly a wide and 
startling departure from anything which has ever been heretofore 
enacted by the Federal Government. 

It would seem that the greatest extent to which such legislation 
should go is the mere statement that being a member of a combina- 
tion in restraint of trade shall constitute unclean hands in equity. It 
will be recalled that immediately after the Sherman Act was enacted 
it was contended many times and with much force (although over- 
ruled by the courts) that membership in a combination in violation 
of the Sherman Act constituted of itself unclean hands. The courts 
could have decided the question either way and it would seem that 
there is no reason for going any farther than such a holding, if as 
far. Certainly to have it constitute a complete defense to a suit on a 
contract that the complainant was engaged in a combination of this 
character seems a wholly unreasonable and unnecessary provision. 

I will now turn to the sections which are practically amendatory 
of the Sherman Act. The inherent vice of these sections, as it seems 
to me, lies in the fact that they discriminate between users of patents 
and others. Take, for instance, section 5, Avhich provides that when- 
ever, in a civil suit under the Sherman Act, it appears that a com- 
bination in violation of the act existed and that a patent has been 
used in connection with the restraint of trade, the restraint shall be 
conclusively deemed to be unreasonable and in violation of the Sher- 
man Act when any of a large number of other conditions exists. Now, 
why a given action should be unreasonable if a patent is used and not 
unreasonable if a patent is not used is beyond mj^ power to fathom. 
The boast of our Government has been that it affords equal protection 
of the laws, and that every man is the equal of every other man be- 
fore the law. If that be the case, what an absurd travesty it is to 
provide that if a patent be used certain things are unreasonable ; and 
if a patent be not used, they are not unreasonable. 

In passing, attention should be called again to the same difficulty 
with reference to section 5 as has already been mentioned in connec- 
tion with section 4 — that is, that no one can tell when a patent has 
l)een " used " in the sense of the act. Bear in mind that section 5 re- 



EEVISIOX OF THE PATEXT LAWS. 45 

quires three things : First, that a combination shall exist : second, that 
a patent shall have been '" used '* in connection therewith ; and third, 
that any one of the many other enumerated conditions shall also 
exist. Xow. the first and sometimes the third condition can easily 
be determined, but the second is a very doubtful question. When is a 
patent ** used " and when is it not " used "' ? Certainly if the patent 
is not •' used '' by merely manufacturing under it. Is it '' used " if a 
suit is brought on it ? That seems doubtful, for the filing of a bill is 
rather the protection of a property right than the actual " use '■ of 
the patent. Is it '* used '' if threats are merely made on it ? It would 
seem not. Is it *' used '' if licenses are gi-anted under it? Probably 
not. The grant of a license is not the use of a patent : it is the sale 
of it, in substance. From this point of view, it is evident therefore 
that the bill has been drawn by some one wholly unfamiliar with 
patent law and who uses diction which is unintelligible to any patent 
lawyer. With all our experience in patents, it is impossible to tell 
whether any of our clients ever '* used " a patent or not. As a matter 
of fact, a patent is not an article of " use." It is an incorporeal 
hereditament conferring the right to bring suit and if one of us 
adopted such loose and meaningless phraseolog;\' in a contract, the 
contract would be held bad for indefiniteness. The courts, however, 
would endeavor to give to an act of Congress some sort of meaning 
and they would be obliged to guess, just as we have to guess, what 
this section means. At the present time I am absolutely unable to- 
inform you what would constitute a " use *' within the sense of the 
second requirement of section 5. It may be stated that all the re- 
maining sections of the bill relating to the antitrust features contain 
in some circumlocution or other the phrase " to use a patent," and 
they are all open therefore to this same criticism of indefiniteness, 
and it must be understood that in further discussion of the bill all 
the sections are open to this point of attack and they are all indefinite 
to this extent. 

Xow. section 5 goes on to enumerate contingencies lettered from 
A to L. which shall make the section operative when there occurs- 
the first two conditions already enumerated, i. e.. a combination and 
the use of a patent therein. The first two contingencies, A and B, 
arise whenever the vendor of a patented article attempts to get the 
effect of a restricted license on the article, either by limiting its sale 
price, or preventing the vendee, otherwise than by the ordinary 
solicitation of trade, from purchasing or using any other article in 
connection with the patented article. If these acts were merely 
prohibited in themselves an excuse, if not a reason, for enactment 
of legislation would be evident. '\Miy these clauses should be stuck 
in as an amendment to the Sherman Act. defining "* reasonable " 
restraint. I am unable to discover. Legislation of this kind is am- 
biguous, doubtful, and very hard to enforce. A single prohibition of 
the acts mentioned in the clauses will get a quicker result in simple 
form. 

Clause C is aimed at preventing the patentee from buying up any 
other competitive patent. Why this should be necessary when the 
compulsory license section appears in the same bill. I do not know. 
Doubtless there have been cases in which an entire trade has been 
pretty thoroughly monopolized by the purchase of large numbers of 
patents, and it is at such practice that the clause is aimed. 



46 ee^t:siojs^ of the patent laws. 

Clauses D, E, F, and G introduce a brand new thought iiito the 
patent law, and to which thought we, as citizens, should give some 
attention. I shall not enumerate these clauses in detail, but their 
evident purpose is to treat the owner of a patent manufacturing 
under it as a public servant, subject to the obligations of a public- 
service corporation in that he is not permitted to discriminate be- 
tween purchasers or to grant rebates of any kind, character, or 
description. Personally, I have sometimes feft that sooner or later 
we would come to a realization that, as a matter of political economy, 
every corporation, holding itself out as ready to do business with the 
public and exercising a corporate franchise, should be held, to some 
extent, at least, to partake of the nature of a public-service corpora- 
tion and should be limited in its discrimination between the different 
classes of its customers, just as we now prevent the railroads from 
granting rebates. I personally favor treating industrial concerns 
much as we treat railroads, but this is the first time that I have ever 
seen it suggested in a proposed bill. It would seem that if such 
a measure is to be enacted it should be enacted because sound in 
political economy and it should then be made to apply to every con- 
cern which can be reached by any legal power whatever, and not 
merely to those who are in unlawful combination and who use patents 
in aicl thereof. However, it may be urged with fairness that the 
patentee enjoying, as he does, a public franchise, very much like the 
franchise under which a railroad may exercise the power of eminent 
domain, should partake more of the nature of a public servant than 
does the ordinary industrial company. That is the interesting point 
presented by these four clauses of the bill. 

Clause H is intended to prevent doing- business under fictitious 
names, a most excellent provision, which is too good to be restricted 
to those Avho are in combinations and use patents. 

Clause I is aimed at preventing improper competition by selling 
below cost, likewise an excellent provision, which should be of general 
application. 

Clause J is aimed at improper means of securing information with 
reference to a competitor's business, and is likewise too desirable 
a i^rovision to be limited to those using patents in combinations. 

Clause K seeks to prevent one from fixing upon material which he 
controls an unreasonable price to limit competition with a patented 
article. The occasion for its use would arise so seldom as to make it 
unimportant. 

Clause L is aimed at attempts " to prevent or restrain competition 
by use of any unfair or oppressive means or methods of competition." 
This clause is open to two fundamental objections. In the first 
place, its intention is manifestly good, but the prohibition should not 
be limited to owners of patents or vendors of patented articles or to 
(hose who have used a patent in connection with or to aid an unlawful 
monopoly. The second objection to this clause is its vague and 
indefinite language. If the clause is aimed at what is technically 
known as unfair competition, patent lawyers would know what it 
means, but the clause should be perfectly clear and distinct in its 
language. If the clause read, " To prevent or restrain competition 
by practicing ' unfair competition,' " it would have a definite legal 
As it is, no one can tell what " unfair or oppressive means 



f 



REVISIOX OF THE PATEXT LAWS. 47 

or methods '' may mean. This clause alone would give rise to years 
of litigation before it was construed. 

To sum up, as far as the acts aimed at in the several clauses A-L 
of section 5 are economically and politically desirable, they should 
be put in short, simple, prohibitory paragraphs, each by itself, and 
not hooked onto the Sherman Act, as definitions of *' reasonable," 
to become effective only after a combination and the use of a patent 
are proved. 

The sixth section of the bill can find its basis only in the theory 
that in some way the owner of a patent becomes a public servant. 
The purpose of the section is manifestly founded in what appears to 
be a pojDular sense of justice, but it rests on a wholly new view of 
the rights of a patentee. The substance of the section is that when 
a corporation or other person is violating the Sherman Act, and 
has the control of supplying the market with a patented article 
needed for manufacturing any other, or for general consumption or 
use, and when there is no opportunity- to get a substitute, then the 
court may make such order as will secure to the public a right to 
acquire or- use the patented article on reasonable terms to be fixed 
by the court until an adequate substitute can be provided. Xow, 
heretofore, we have supposed that the patentee was the czar, and that 
he could charge anj'^ price he pleases or at any moment withdraw 
the patented article from the market, no matter how great might be 
the inconvenience of the public. The present section treats the 
vendor of a patented article as a public servant who may be caused 
to continue in business willy-nilly for the purpose of supplying the 
public with a patented article which has become a public necessity 
at a reasonable price. Economically this view may be sound. As I 
have already stated, I feel that the time is rapidly approaching 
when every manufacturer will be considered a public servant from 
the moment when he holds himself out to the public as ready to sup- 
ply the public. Just why this view should be taken with reference 
to manufacturers of patented articles at the present time I do not 
know. Probably no fault could be found with the practical opera- 
tion of this particular section, because it only becames operative 
after certain proceedings had in a suit under the Sherman Act, but 
it is of importance because it rests in such a fundamentally new 
theory of the rights of the public as against a patentee. It might 
also be held unconstitutional as it stands as granting a nonexclusive 
right, but this could be cured as the compulsory-license section has 
been by exempting the patentee. 

The*^ remaining sections of the bill, that is, sections T to 11. inclu- 
sive, have nothing whatever to do with patent law. but are strictly 
amendments to the Sherman Act. limited, however, to those cases in 
which a patent was used in connection with the unlawful restraint of 
trade. The general theory of such legislation has already been criti- 
cized. Without repeating that matter, the sections will be taken up 
one by one. Section 7 pro^'ides. in substance, that whenever in a suit 
brought by the Government under the Sherman Act a final judgment 
or decree has been rendered against the defendant finding it guilty, 
then the res ad judicata created by such decision shall extend to 
private litigants in any other litigation. To my mind this is an ex- 
cellent general provision, because the right to civil relief under the 



k 



48 EEVISIO:Nr OF THE PATENT LAWS. 

Sherman Act is only mythical, if the private litigant must retake all 
the testimony taken by the Government. The only possible quarrel 
which I can have with the section is that it distinguishes in a wholly 
unreasonable way between those corporations which use patents and 
those which do not. The section is so good in itself that it ought to 
be of general application. 

Section 8 provides for intervening petitions by injured individuals 
in suits brought b}^ the Government in which the individual may re- 
cover his personal damages. This provision seems an excellent one as 
a general amendment to the Sherman Act, but why a private citizen 
should have the right only in case the corporation has used a patent 
in its unlawful combination I am unable to see. 

Section 9 enlarges the powers of the courts in handling corpora- 
tions or combinations dissolved under the Sherman Act. It is doubt- 
ful Avhether anything is really added which the courts would not in 
any event take as a matter of their equitable powers in cases of neces- 
sity, but it is impossible to see where the section will do any particu- 
lar harm, excepting that the courts should have power to use the 
same remedies in cases where patents have not been used in the un- 
lawful combinations as where they have. 

Section 10 provides for further intervention in suits under the 
Sherman Act. It is doubtful whether there is anything objectionable 
in this section as an amendment to the Sherman Act, excepting that, 
if the enactment is desirable, it should apply generally to all viola- 
tions of the Sherman Act^ and not merely to those cases in which 
patents have been used by the unlawful combination. 

Section 11 of the bill proceeds upon another new theory. The sub- 
stance of the section is that whenever the Government brings a suit 
against anyone for violation of the Sherman Act, then no other de- 
partment of the Government shall purchase goods from the defend- 
ant, except in cases of dire necessity, which are provided for in the 
section. This section would put into force in Government affairs 
exactly what every private corporation practices every day. No 
private corporation will bring suit through its legal department and 
continue through its other departments to purchase goods from its 
opponent, so as to put into its hands the munitions of war. The 
theory of the present section is that the Government shall do just 
the same thing; that is, that the moment the Department of Justice 
determines that there is sufficient basis in the conduct of any indi- 
vidual, or corporation, for a suit under the Sherman Act, then the 
other departments of the Government shall not purchase goods from 
the defendant, so as to enable it to continue in its business and ob- 
tain from one department of the Government the munitions of war 
with Avhich to fight another department. This section of the act 
thus simply puts in force in governmental affairs what every private 
corporation does. However, whether right or wrong, the act should 
be of general application, and not limited to those corporations 
which in their unlawful business have used a patent in violation of 
the present act. In fact, it would seem that this act should not be 
limited to suits under the Sherman Act at all, but if it is wise in 
theory, it should apply to every case in which the Government has 
brought any sort of a suit against any individual for any purpose 
whatever. Viewed in that Avay it is exactly what every private in- 



REVISION OF THE PATENT LAWS. 49 

dividual always does, and it is urged that it is good business policy 
for the Government to refuse to purchase from its legal opponents. 
However, it is said that this punishes before conviction, and that the 
defendant must be presumed innocent until proven guilty. The 
reply is that this presumption attaches only for the single purpose 
of a trial before a petit jury and for all other purposes an indictment 
raises a presumption of guilt. (See Thayer on Presumptions.) 
Since the Department of Justice regularly convicts in more than nine 
cases out of ten which it starts it is not so very unjust to treat a de- 
fendant as guilty for this purpose just as he is treated as guilty for 
every other interlocutory purpose, e. g., giving bail. 

Section 12 of the act has already been discussed. 

In thus taking up the antitrust parts of the act section by section 
its substance has been fairly covered. It is impossible briefly to sum- 
marize the act, because it deals with a multitude of subjects, some 
good in substance and some bad in substance, and most of which 
have no particular relation to the patent act. Section 4 is the only 
one of the antitrust sections which relates principally to patents, as 
such, and, as I have already pointed out, no one can tell what that 
section means. Section 5 has some relation to patents, but those 
clauses which do relate to patents primarily are fully covered by 
other sections of the bill discussed by other members of the com- 
mittee, and the remaining clauses of section 5 are, as pointed out, not 
particularly based on patents. Section 6 is of little practical conse- 
quence, but most important in its theory of viewing the vendor of the 
patented article as a public servant; and the same statement may be 
made with reference to certain of the clauses already enumerated in 
section 5. The remaining sections are purely amendments to the 
Sherman Act dragged into a patent statute by the ears. Those which 
are good in substance should be of general application, while those 
which are bad in substance on economic grounds should stand on 
their own merits without being confused and intermingled with 
patent questions with which they have no inherent relation. 

o 



S. Doc. 151, 63-1- 



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